Here is one of the most popular options strategies: The Wheel. It is not for huge ups and downs; rather, it is an options strategy for consistent income.
My guest, Paul Gundersen, has done more than 8,000 trades with the Wheel options strategy and has consistently made 15-18% for several years. In this video, he walks us step-by-step through how he trades the Wheel.
Watch Paul Gundersen explain the Wheel options strategy
Paul Gundersen is a seasoned options trader who has executed more than 8,000 Wheel trades over the past five years. With a professional background in the software industry and experience as a financial coach, he focuses on steady, repeatable income from options selling. He lives in Pennsylvania, USA.
What is the Wheel options strategy?
The Wheel strategy is one of the most popular approaches among retail options traders who seek consistent cash flow. It combines two core trades: the cash-secured put and the covered call. Together, they create a cycle — or “wheel” — of earning premium income whether the market moves up, down, or sideways.
Paul compares it to owning a rental property: you collect rent (option premiums) while you wait to own or sell the “property” (the stock). The key is discipline — doing the research, managing risk, and repeating the process week after week.
Step 1: Selling cash-secured puts
The first stage of the Wheel begins when you identify a stock you’d like to own. You sell a cash-secured put — meaning you set aside enough cash to buy 100 shares of that stock if assigned. If the stock stays above your strike price until expiration, the option expires worthless, and you keep the premium as income.
If the stock drops below your strike price, you’re “assigned” the shares — which is exactly what you wanted. You now own the stock at an effective discount, thanks to the premium you already received.
Paul stresses the importance of selecting quality companies with rising revenue and earnings. He typically uses tools like FastGraphs and screens for solid business models he understands, growing EPS and sales, and healthy trading volume and volatility to ensure good option premiums.
Step 2: Selling covered calls
Once you own the shares, you move to the next stage — selling a covered call. You sell call options against your stock, agreeing to sell it if the price rises above your chosen strike. This allows you to keep earning rent in the form of premiums while waiting for the next move.
If the stock stays below your strike, the call expires worthless, and you sell another one. If the stock rises above it, you sell your shares at a profit and start the wheel again with a new cash-secured put.
As Paul explains in the interview, the covered call is what makes the strategy so reliable:
“Even on stocks that don’t pay dividends, the Wheel creates very reliable income.”
Rolling, managing, and the “set it and forget it” approach
One of Paul’s trademarks is his “SIFI” trading style — set it and forget it. He typically spends only 15 minutes in the morning and 15 minutes in the afternoon adjusting or rolling trades.
Rolling means buying back an existing option and selling a new one, often for a small net credit. This lets traders extend trades to future expirations, adjust strike prices, and capture additional income over time.
For more active traders, Paul recommends weekly expirations (shorter days to expiration, or DTE). For beginners, he recommends starting with monthly options to simplify management.
Risk and rewards of the Wheel options strategy
While no strategy is risk-free, Paul rates the Wheel around 4 or 5 on a 10-point risk scale. The main risks include the stock falling sharply after assignment or missing upside gains if a stock rallies far above your covered call strike.
However, the consistent income and controlled exposure make it less risky than simply buying and holding stocks. As Paul puts it:
“Compared to buying the stock outright, the Wheel is safer because you’re collecting income all along the way.”
Over five years, he reports 12–15% annual returns from option premiums plus another 3% from dividends, for a total of 15–18% per year — with a manageable workload and predictable routine.
Why the Wheel works for retail traders
The Wheel strategy is DIY-friendly, meaning anyone can learn it without depending on Wall Street professionals. It’s particularly well-suited for busy professionals who want income without day trading, retirees seeking cash flow from existing portfolios, and long-term investors who prefer owning stocks they understand.
In Paul’s view, success with the Wheel comes down to three habits:
Do your homework on every stock before selling options
Be patient and treat it like owning a rental property
Stick with the process: repeat the wheel again and again.
The Wheel strategy is an income-focused options trading approach that combines selling cash-secured puts and covered calls. Traders start by selling a put option on a stock they’d like to own. If assigned, they sell covered calls on the shares to generate continuous premium income. It’s called a “wheel” because the process repeats in a cycle.
How does the Wheel strategy make money?
The Wheel options strategy earns income from option premiums. Traders collect premiums from selling cash-secured puts and, once assigned, from covered calls. This steady cash flow can generate annualized returns of 10–20%, and even more, depending on volatility, stock selection, and trade frequency.
What is a cash-secured put?
A cash-secured put is an option trade where you sell a put contract while maintaining sufficient cash in your account to buy the stock if the contract is assigned. If the stock price stays above the strike price, you keep the premium as profit. If it drops below, you have to buy the stock at the strike price.
What is a covered call in the Wheel strategy?
A covered call involves selling a call option against shares you already own. You earn a premium upfront, agreeing to sell your stock at a set strike price if it rises above that level. If it doesn’t, you keep both your shares and the premium, then sell another covered call in the next cycle.
How much can you make with the Wheel strategy?
Returns vary, but experienced traders like Paul Gundersen report earning 12–15% annually from option premiums plus around 3% in dividends, for a total of roughly 15–18% per year. Results depend on account size, risk tolerance, and consistency.
Is the Wheel options strategy risky?
The Wheel is generally considered a moderate-risk strategy — about 4 or 5 on a 10-point scale. The main risks come from owning stocks that drop significantly after assignment or missing upside if a stock rallies beyond your covered call strike. Proper stock selection, diversification, and disciplined management help reduce these risks.
What types of stocks work best for the Wheel strategy?
The best Wheel candidates are liquid, large-cap stocks with: – Strong fundamentals and rising earnings per share (EPS) – Moderate volatility (implied volatility over 30%) – Active options markets with tight bid-ask spreads Examples include S&P 500 and Nasdaq 100 stocks such as Microsoft, Nvidia, and Coca-Cola.
How often should you trade the Wheel strategy?
Active traders often sell weekly options (7–10 days to expiration) to maximize annualized returns. Beginners may prefer monthly options for simplicity and easier management. The principle: shorter expirations generate faster compounding, while longer ones require less monitoring.
What happens if the stock price drops after assignment?
If your stock falls below your purchase price, you can continue selling covered calls at lower strikes to collect premiums and reduce your cost basis. Some traders “roll” their positions — buying back the old option and selling a new one at a different strike or expiration — to manage downside risk while maintaining income flow. Other traders will choose to pause selling calls if they can no longer sell covered calls at their cost basis.
Can beginners trade the Wheel strategy?
Yes. The Wheel strategy is one of the most beginner-friendly options strategies because it involves owning real shares and collecting income rather than high-risk speculation. Beginners should start with high-quality stocks, monthly expirations, and low position sizes while learning the mechanics of cash-secured puts and covered calls.
