How To Trade The Wheel Strategy With Volatility In Mind?

When it comes to trading styles and strategies, they can be grouped in so many different ways. Day trading, Swing trading, Momentum trading, Scalping, etc. To me, all of these types of trading sound hectic. They all require active monitoring of stock price, stock movement, stock news, etc etc etc. I have personally tried a few of these and they have never worked out for me. Don’t get me wrong, they do work for many people but they are just not a good match for my personality.

I started out trading penny stocks and eventually made my way to Indexes and ended up trading options. Over the years, I have tried many different types of options trading. Some require more work than others. Some have a higher probability of success than others. Some are premium selling and some are premium buying.

As you can see it was not a straight path for me to get to the Wheel strategy. It was a lot of trials and errors before I ended up realizing the Wheel strategy is the most profitable way to trade, at least for me.

What is the Wheel Strategy?

It’s essentially selling Put and followed by selling Covered Call.

Here are the steps.

1) Sell Put

2) Buyback when it hits your target or you can wait until it expires out of the money. Go back to step 1) and keep repeating it. 

3) If the stock price drops and gets assigned, sell Covered Call until the stock price recovers to the entry point.

4) Sell the stock as soon as you can. Do not hold it so the capital can be deployed for the next Put selling cycle.

Please note this is the way I prefer to trade the Wheel Strategy.

If someone wants to own a stock for the long term, the Wheel Strategy can be used as well, by purposely selling in the deep money Put to get assigned for the stock at a discount, then keep selling Covered Call and avoid assignment by rolling the Call out if likely to get assigned.

5 Reasons Why I Love the Wheel Strategy

1) It doesn’t require me to sit in front of the computer all day long

For some people, trading is just another job. They want to make a lot of money FAST. They look for ways to trade as much as they can and most of them ended up day trading. I am not looking to have another job. In fact, I am looking for ways to NOT have a job. The wheel strategy allows me to do just that. Place the trade and I can walk away for a while.

2) It doesn’t require my attention all the time

Trading the Wheel strategy is relatively simple. Find good stocks that you wouldn’t mind owning them for a while and make sure to choose ones that are unlikely to go bankrupt or reverse split in near future. Once you have done your homework and place the trade, that’s it. Just want and monitor the price once in a while until expiration.

3) It doesn’t make me stressed out or drenched in adrenaline all-day

Trading should not be exciting. If you are looking for excitement, go do something else. We trade to make money, that’s it. There is no need to get stressed or drenched in adrenaline. Do the homework, place the trade, then close the position when the time comes. That’s it.

When placing trades for the Wheel strategy, I already know when I want to get out. If I get assigned, I would just calmly place a Covered call order and wait for it to get assigned. Yes, the stock price might go beyond the strike price. Yes, the stock might go much lower than I anticipated. I am ok with that because I have already taken those factors into consideration/calculation before I placed the trade.

4) It has a high win rate

The term “win rate” might be different from person to person because some people might count on getting assigned a “loss”. The way I count it is based on PNL. Even if my positions get assigned, as long as I managed to sell the stock above the entry point I consider it a win, because the overall PNL (sold PUT, sold Call) is positive.

Based on my own trading record in 2020 so far, the win rate is 89% for the Wheel strategy.

5) It’s easy to understand and manage

Have you ever tried to roll up or down an Iron Condor or a Double Diagonal Calendar spread? So many legs we have to figure out what to do with those. I was into trading those at one point because Iron Condor is ideal for high volatility trades and Calendar spread is ideal for low volatility trades.

When it comes to the Wheel strategy, it’s a simple Naked (or cash-secured) Put and a Covered Call, that’s it. To open, decide at what price point you don’t mind owning the stock and choose the strike price based on that to sell Put. If the stock price declined beyond the strike price and you get assigned, hold the stock and decide at what price point you are willing to sell the stock, then choose the strike price to open a Covered Call.

How to Leverage Volatility to Trade the Wheel Strategy?

People who jump into the Wheel strategy with this thinking will likely get low ROI (Return on Investment) unless they are really good at fundamental analysis or technical analysis.

This is because they are using the Wheel as a way to own the stock and write Covered Call.

They are likely not putting too much thinking into how they should sell the Put in the first place. 

The cool thing about trading options lies in the ability to sell “Volatility” and “Time value”. Combining the two will allow us to generate consistent income disregarding how the underlying stock performs. This is why the emphasis should be held on how Put options are sold in the first place.

Why Focus on Selling Put Options?

This is the part of the Wheel strategy that we have the most power of control because we get to decide which strike to jump in. Just like the real estate investment analogy “you make money when you buy a property”, for the Wheel strategy, “you make money when you sell Put”. We can find underlying stocks with high IV percentile and options with enough time value for us to get a consistent return of 5% to 10% a month. The underlying does not necessarily need to be something you want to own, because the key focus is to NOT GET ASSIGNED and focus on profiting from the premium gained selling Put options.

Most people look for stocks that are trending and most talked about without thinking about IV percentile or time value. What they are doing is essentially the same as buying a promising stock but using the Wheel strategy to get a cheaper entry point, or selling Covered Call until the stock price rises to a point that they can make a huge profit.

As you can see, for people who focus on options trading, selling Covered Call is an afterthought and should not be the main focus of the Wheel strategy. We sell Covered Calls because it will let us keep making money until the stock price recovers to the strike that we got assigned, and allows us to get out breakeven or even profit more when the stock price recovers.

How to Find Stocks with High Implied Volatility for The Wheel Strategy?

The Concept

1) Find High IV Percentile Underlying Stocks

IV changes all the time based on what is going on in the market. News (good or bad) could change IV. IV also tends to spike before earning calls.

2) Choose the Right Expiration (Time Value)

Some expiration date is better than others. Maybe there is a product launch in 60 days. A phase 2 drug trial completing in 45 days. Check options close to 30 DTE (Day to Expiration) as a benchmark or even weeklies if there is one and calculate the “Monthly ROI”. Calculate the ROI for the shorter DTE Put option vs the longer DTE Put option. Choose the one that would allow you to get a 5% to 10% monthly return.

For example, ROI for a Put option strike price of $5 with 0.5 premium and 30 DTE is approximately 10% ROI per month using Cash Secured Put. Calculation based on 30 days = 1 month.


I use the Thinkorswim platform and it comes with a very powerful Scan tool. The screenshot below shows one of the scans that I use. There are so many ways to narrow it down to find potential underlying. This is a constant Work In Progress for me.

I must point out this is only half of the work in finding a good underlying candidate. I recommend doing some quick fundamental analysis to make sure the company isn’t going bankrupt in the near future or the stock is not getting reverse split, and technical analysis (such as Trade Apgar Score) to find a good entry point and strike price.

TOS options scan for wheel

How To Manage Losing Trades For The Wheel Strategy?

Video Notes

  • Define When You Plan to Get Out
    • Price / Time Frame
      • Technical Analysis / Fundamental Analysis
  • Define what you will do
    • Selling Put
      • Let it get assigned? (Under Valued)
      • Roll it out? (Under Valued)
      • Close the Trade? (IV Play)
    • Selling Covered Call
      • Let it get assigned? (Under Valued)
      • Roll it out? (Under Valued)
      • Close the Trade? (IV Play)
  • Define Market Conditions
    • Closeout everything?
  • Follow Money Management (only risk x% per trade)
    • Look for underlying that you can afford based on your account size
  • Understand Your Win / Loss Ratio
    • Helps you to think logically
9 replies
  1. Bryan
    Bryan says:

    Hi ,i like everything that you wrote here,i learnt new knowledge from here. Any way can join your discussion room or discord?

    • Tony
      Tony says:

      Hi Bryan,
      Thank you for asking but I do not provide a discussion room or discord service.
      If you have a question please feel free to post it here in the comment or send me a message using the contact us page. I will do my best to answer your questions.

  2. b-lambda
    b-lambda says:

    Thank you for this. I’ve just gotten back into investing after selling my home, but have to admit, for all my previous experience, CSP’s were a new concept, and the missing piece it turns out. Love CSP’s! When I put everything together and saw it work, though, my thought was, “Why isn’t everyone doing this!? They must just love sweating the market from 9:30-4 every day.” Having just gotten started on it, it’s reassuring to hear from others who are using it. Anyway, my question for anyone and everyone is this: have you come up with a good screen to find securities with attractively-priced options? So far I’m finding that volatility and volume should be part of it. But that still means going through a lot of duds to find the diamonds.


Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *