I’m a Rockwell Trading referral partner and may be paid if you buy through my link.
Right now I trade most mornings at home on my laptop with a coffee. The plan, once the van’s done, is to do the same thing parked somewhere beautiful: a national park, a quiet beach, a mountain pull-off, with Rudder asleep on my feet. A good part of what I do each morning is one simple strategy: the wheel.
It’s not exciting. That’s why I like it.
What the wheel is
The wheel is a loop of two option trades:
- Sell a put on a stock I’d be happy to own.
- If I get assigned, I now own 100 shares.
- Sell a covered call on those shares.
- If the shares get called away, I’m out of the stock. Start over at step 1.
Each time I sell an option, I collect a premium up front. It’s mine to keep no matter what happens next.
Step 1: Selling the put
When I sell a put, I’m agreeing to buy 100 shares of a stock at a set price (the strike) any time up to the expiration date, if the buyer chooses to make me. In return, I get paid a premium today.
So be honest with yourself about what that means. One contract at a $50 strike is $5,000 of stock (50 x 100) if I get assigned. That’s why I only sell puts on stocks I’d be fine owning.
I use margin when it’s appropriate, so I can earn more with what’s in the account. That means the account has to have room to actually take the shares if I get assigned. And margin cuts both ways. It makes the losses bigger too, not just the gains.
Three things can happen:
- Stock stays above the strike at expiration: the put expires worthless. I keep the premium. I can sell another one.
- Stock drops below the strike: I’ll likely be assigned and buy 100 shares at the strike.
- I close it early: I can buy the put back before expiration to lock in part of the profit or get out of a trade I don’t like.
One detail people miss: US stock options can be assigned early, any day before expiration. It’s most likely when the put is deep in the money. If your account has room to take the shares, early assignment isn’t a disaster – it just moves you to step 2 sooner.
Here’s a real one. In September I sold a put on Carvana (CVNA) at a strike about 7.7% below where the stock closed that day, with four days to expiration. Midweek it dipped to within about a quarter of a percent of my strike. Then it bounced, and the put expired worthless on Friday. I kept the whole premium: about 0.8% on the strike value, in four days. That’s roughly 73% annualized. Small per trade, but it adds up. That’s the wheel.
That’s one example from my own trading; your results will vary.
How I pick stocks
I keep this simple. Here’s what I look for:
- A company I’d actually want to own. If I’d be upset holding the shares for months, I don’t sell the put. This is the most important rule I have.
- Liquid options. Tight bid/ask spreads and plenty of open interest, so I’m not giving money away getting in and out.
- A share price that fits. One contract is 100 shares. If one assignment would eat too much of my account, it’s the wrong stock for me.
- A strike I’m OK paying. I pick a strike where I’d honestly be fine buying the stock, not just the one with the fattest premium.
- Know the calendar. I check when earnings and ex-dividend dates are before I sell. Earnings can gap a stock right through my strike. If I’m holding through earnings, it’s on purpose.
This is the style Rockwell Trading teaches, and it’s what’s worked for me. I use PXO (PowerX Optimizer) to help scan and plan these trades – you can see what it is here: PowerX Optimizer.
A big premium usually means bigger risk. It’s not free money.
Step 2: Managing assignment
Getting assigned is not failing. It’s part of the plan – I said I’d be happy to own the stock, and now I do.
My real cost per share is the strike minus the premium I collected. Sold a $50 put for $1.00? My cost basis is $49 a share. (Those are example numbers to show the math, not a trade of mine.) Every premium I collect after that keeps lowering that effective cost.
I don’t panic-sell. I already decided I liked this company. Now I sell covered calls.
A real one: in August I sold puts on SPCX right at the money, two days before expiration. It closed about 2% under my strike that Friday, and I got assigned. Over the next six weeks I sold covered calls four times, always at a strike at or above what I paid. Between the puts and the calls, the premiums knocked about 5.2% off my cost (measured against the strike). In early October the stock ran, and my shares got called away at an average of about 11.6% above my strike. All in, that was about 16.7% on the strike value over 44 days, or roughly 138% annualized. That one went my way. They don’t all.
That’s one example from my own trading; your results will vary.
Step 3: The covered call
Now I own 100 shares. I sell a call against them. That means I agree to sell my shares at the call’s strike any time up to expiration, if the buyer wants them. I get paid a premium for that.
- Stock stays below the strike: the call expires worthless. I keep the premium and the shares. I sell another call.
- Stock goes above the strike: my shares likely get called away at the strike. I keep the premium plus any gain up to the strike. I’m out of the stock and back to step 1.
My rule: I sell calls at a strike I’m happy to sell at. Ideally that’s at or above my cost basis, so getting called away is a win, not a locked-in loss.
While I hold the shares, I collect any dividends the company pays, as long as I own them before the ex-dividend date. One catch: if my call is in the money right before an ex-dividend date, the call owner may exercise early to grab that dividend. Worth knowing so it doesn’t surprise you.
The risks (the honest part)
The wheel is often sold as “safe income.” It’s not risk-free. Here’s what can go wrong:
- Assignment in a falling market. This is the big one. If the stock drops hard, I still have to buy at my strike, even if it’s way below that. The premium only cushions a little. Worst case, a stock can go to zero, and selling a put carries nearly the same downside risk as owning the shares.
- Stuck with a loser. After a big drop, calls at or above my cost basis may pay very little. I can wait, or sell lower calls and risk locking in a loss. Neither is fun.
- Capital tied up. The money or margin room backing a put can’t be used for anything else. Shares I’m holding can’t be sold freely while a call is open (unless I buy the call back first).
- Margin magnifies losses. I use margin when it’s appropriate to earn more. But it makes a bad trade worse, not just a good trade better. A stock can gap well past my strike overnight, and on margin that hurts more. If the account doesn’t have room for the assignment, that’s a real problem.
- Capped upside / opportunity cost. If the stock rockets, my covered call caps my gain at the strike. I watch it go higher without me. Same with puts – if the stock rips up, I only made the premium.
- Concentration. Wheeling only one or two stocks puts a lot on a few companies. Spreading it out matters.
Wheel stocks you’d hold anyway, in a size you can sleep with.
How the wheel feeds the Forever Dividend
My long-term goal isn’t the next trade. It’s a dividend account that keeps paying our family long after I stop clicking buttons. I call it the Forever Dividend.
The wheel helps that in two ways:
- Premiums become fuel. Some of what the wheel brings in gets moved toward dividend holdings, so the trading today builds something that lasts.
- Assignment can be a feature. When I wheel quality dividend-paying stocks, getting assigned just means I bought a company I wanted at a price I picked – and it pays me dividends while I sell calls on it.
Every month I move money from trading into the dividend account, usually around 5–10%. When it’s a really strong month, I put in more.
There’s no finish line. As our expenses go up, the account has to grow with them. One rule I use: when I buy something, a subscription or even a car, I want enough dividend stocks to pay for it every month. Buy the thing, then buy the dividends that cover it.
The van and the miles get paid by the trading. The Forever Dividend is what it’s all for.
Wrapping up
The wheel in one line: get paid to wait to buy stocks you like, then get paid to wait to sell them.
Want to see where the van was parked while these trades happened? We post the build and the road on YouTube at @CJVanVentures. Next up: How I Trade Earnings.
Not financial advice. I’m sharing what I do with my own money, for education only. Options involve risk and are not suitable for everyone – you can lose money. Read the OCC’s “Characteristics and Risks of Standardized Options” before trading options. I’m a Rockwell Trading referral partner and may be paid if you buy through my link.