When I understood the sold put, one question remained: and if I get assigned the stock, what do I do with it? The answer turned out to be the rest of the strategy. That full cycle is called the Wheel, and it was the first thing in the market that I felt I could repeat calmly, without being glued to the screen.
The cycle
- You sell a put on a stock you want to own and collect a premium.
- If the stock doesn’t fall to your price, you repeat: sell another put and collect another premium.
- If it falls and you’re assigned, you now own the stock —bought at the price you’d accepted—.
- Holding the shares, you sell a call: you collect another premium for committing to sell them at a higher price.
- If they’re bought at that price, you close with a profit and go back to step 1. If not, you repeat the call and collect another premium.
Sell puts until you’re assigned; sell calls until they’re taken away. And start again. Hence the name.
An example
You have $5,000. A stock trades at $52.
- You sell a put at strike $50, premium $150.
- You’re assigned: you buy 100 shares at $50 ($5,000). You’ve collected $150.
- You sell a call at strike $51, premium $120.
- It’s exercised: you sell at $51 ($5,100).
Result: $100 from the stock’s rise + $150 + $120 in premiums = $370 on $5,000, in one turn.
What no one told me at first
The Wheel isn’t magic or guaranteed income. My first turn went perfectly and I thought I was smarter than I was; on the second, the stock collapsed and I was left holding something worth less, with the premiums cushioning only part of the blow. That’s why the golden rule is the same as with the put: only on stocks you’d want to own, with money you can commit.
Turning the wheel is getting paid for each commitment while you wait for the price you wanted. Learning to make that boring —and not a rollercoaster— was exactly what I was after.
It’s the full course The Wheel, with every step and every rule.
Educational content. Not financial advice.