Wheel Options Strategy — Step-by-Step Guide & Transcript

[00:01] called the wheel that I want to teach you in today's video. And candidly, the wheel can beat the hell out of the returns of the equity markets if you understand how and when to use it. I can show you how you can squeeze tons of

[00:15] extra profit out of trading solid stocks. And the best part is that the concepts are so simple, you'll find it hard to believe. So, if that's of because I think you're going to be surprised at how effective this can be

[00:27] and how easy it is to learn. Today, we're going to be talking about the wheel. And I'll be explaining why it's called that in a minute. But first, I want to do a really brief review of some basic concepts so if you're brand new to

[00:40] options, you'll understand what we're covering here. And if not, then it will just be a refresher to make sure that you're crystal clear on the concepts. So, first of all, when trading options, you can buy call options or you can buy

[00:52] put options. But it's also important to realize that you can buy or sell them. Your broker will allow you to do both. Now, when you buy a call, you have the right to buy 100 shares of a stock at the call strike price. Whereas, when

[01:07] you're selling a call, you have the obligation, not the right this time, but the obligation to sell 100 shares of a stock at the call strike price. Now, when you buy a put, you have the right to sell 100 shares of a stock at that

[01:22] put strike price. And when you sell a put, you have the obligation to buy 100 shares of a stock at the put strike price. Now, if you think I'm going too fast or this is confusing, then that's fine. We created a video for you to

[01:37] understand options basics. And if you click the video video appearing on your screen right now, it will lay the groundwork for you to understand the teaching you in today's video. Then when you're finished, you can come back and

[01:50] watch the rest of this video. With that as background, let's talk about the wheel option strategy. Now, first of all, the idea behind the wheel strategy is to get paid while you wait to buy a stock at the price you want to pay for

[02:04] it. And incidentally, this is actually a strategy that Warren Buffett uses to get into stocks that he loves at his price. He uses this strategy all the time, as a matter of fact. So, the most important thing is first of all, you need to find

[02:19] a stock that you want to own, right? I mean, that is the basic prerequisite for this whole strategy. You have your eye on a stock, but you think that it's currently too expensive at today's prices. So, for example, I thought we

[02:33] could take a look at the ETF QQQ, known to traders as the Q's. That that's the ETF, which is really a basket of stocks containing the components of the NASDAQ 100 index. And let's face it, long term, it wouldn't be a bad idea to own at the

[02:49] right price, of course, the basket of stocks that are clearly driving the future of mankind, which are tech stocks. And so, for example, let's head stocks. And so, for example, let's head back to October 17th of last year, 2025.

[03:01] And as you can see, the Q's had been in a really nice uptrend off the tariff a really nice uptrend off the tariff panic lows of April 2025. And it had traded as high as 613 before a sharp pullback just the week before

[03:15] a sharp pullback just the week before where it sold off down to 589, then where it sold off down to 589, then rallied back over 600, closing at 60393 that day. Now, let's just say for example here that you want to buy it

[03:27] when it retraces to a price of 595 believing that this uptrend is likely to continue. So, let's say you don't want to chase it. You want the stock to come back to you and you never want to buy a stock at the high. So, it's always a

[03:42] good idea when you're buying stocks to buy it when they're retracing if at all possible. So, let's say we want to buy 100 shares of the Q's when they come 100 shares of the Q's when they come back to 595. The key is that we have a

[03:55] longer term p perspective on the cues. And it doesn't matter. It could be Amazon or Walmart or Caterpillar or Tesla or JP Morgan or whatever. It doesn't matter. It's the same technique. Okay. So, we picked October 17th because

[04:10] it was the third Friday in October. And so, for any stock, there's always going to be an options expiration on the third Friday of each month. And so we're going to be selling a put at that price, 595, about a month out on the 3rd Friday of

[04:25] about a month out on the 3rd Friday of November, which was November 21st. And remember, when you sell a put, then you are obligated to buy 100 shares of the stock at that strike price if the shares close lower than that on the day the put

[04:40] option expires. So, when we pull up an options chain which expires on November 21st, you'll see that we are selling the 595 strike price because this would mean that we have to buy the shares when they drop back to 595. So, we sell the 595

[04:56] put with an expiration of November 21st, which as you can see is going for 1249. And since options sell in units of 100, this means that we are receiving cash because we are selling it. And in this case, we are receiving $1,249.

[05:13] And incidentally, you're going to need to have 59,500 in your account to do this. And the reason is that you may need to buy those shares at 595 per share if your put gets triggered. So keep that in mind. So now let's move to

[05:27] the day this trade expires on November 21st. And as you can see, the Q's after rallying all the way up to 637 pulled back pretty hard, closing the day the put option expired at 5907.

[05:42] And so what does that mean? Well, it means that we now own 100 shares of the Q's at 595. But it also means that we made $1,249 from that put that we sold

[05:54] because even though we got to sign those 100 shares, we still get to keep that $1,249 no matter what. So we made 1249 in 35 days, which is actually a great return in such a short period of time. If you

[06:08] do the math, it's actually about an annualized return of 20%. But be that as it may, now that we own the shares, this is where the wheel strategy kicks in

[06:20] because this is when according to the wheel strategy, you'll start selling calls. Now, what do I mean by that? Well, when we sell a call, it means that we will have the obligation to sell those 100 shares of the cues that we

[06:34] were just assigned at the strike price of the call. And so what we would do here is we'd sell a call that is approximately 25 points above the price that we were assigned those shares so that we give the stock some room to run

[06:50] up before we are obligated to sell it. So we'll sell the 620 call which is 25 points above our acquisition price of $595 and we sell that again on the third

[07:03] Friday of the next month which is December. So that would be on December 19th. And as you can see, that's selling for a price of $4.90. So this means that we would receive $490 in cash for that call option. And now

[07:20] again, the question is, what happens here after this option? This call option expires. So the first option expired after 37 days. So then in another 28 days in this case, we'll see what happens. And so, as it turns out, on

[07:35] December 19th, the Q's rallied and closed that day at 61705. And so, what that means is that the 620 call option expired worthless because it

[07:47] has no value unless the stock closes above its strike price, which is 620. And so, that option just dies and goes away. But think about it. The option away. But think about it. The option died, but you collected $490 at the

[08:00] beginning. And guess what? you get to just pocket that $490. And so, let's keep track of what has happened so far. We pocketed $1249 in options cash flow in November and another $4.90 in December, resulting in

[08:15] a total of $1,739. So, so far, you know, after just two months, which is still a great annualized return, about 16% if you do the math. Okay. So when this happens, we just run it right back and sell that

[08:31] same 620 call into the third Friday in January, which is January 16th, which is when we decided earlier we'd be happy to sell the shares. But you'll notice in

[08:43] this case that the price is a lot higher, 9.89. And that's because as the stock price approaches the call strike price, the more likely it is that the stock will just blast through that price over the next month. And so the market

[08:57] is going to charge a lot more for the right to buy at that price. And so that's actually good news for us because we are selling that call. And so in this case, as you can see, we'll be collecting $989 for the January trade.

[09:13] And remember, once you've received that premium, nobody can take it away from premium, nobody can take it away from you. That premium is yours. And the cash is deposited directly into your account. It's yours forever. Okay. So let's move

[09:26] to the day that the January trade expired. And as you can see, the Q's rallied a bit more here, closing at 62105. So when this happens, you are required to sell the shares at the strike price

[09:40] of the call. So you've got to sell them at 620. And so when that happens and you no longer have those shares in your account, they are automatically sold by your broker at the call strike price of 620. Now, I'd like to stop here though

[09:55] and ask you to think about something. We've been focusing on all the options premium we've been collecting and that has been, you know, impressive on its own. But something else just happened. Something that's actually a bit more

[10:08] significant. And that is that through this process of collecting those this process of collecting those premiums, we also managed to buy the cues at a very low price, 5.95, because we were patient and incidentally got

[10:22] paid cash for waiting for our price. And that's what we got from those put that's what we got from those put premiums. But now on top of that, we just sold those shares 25 points higher at 620. And so if you do the math, we

[10:36] made a profit of $2,500 on those shares. And so let's update our results table. And as you can see in January, there were actually two entries. The options profit, but also the share profit from [snorts] buying low and selling high,

[10:51] which is the whole idea behind the wheel strategy. You see, the wheel strategy has both components. You make money booking positive cash flow from options premium and you make money by getting into stocks at really great prices. This

[11:06] is why the strategy is so attractive. Okay, so we sold a put collecting cash from that. The shares got assigned to us at a great price. We started selling calls getting cash from those and then the shares got assigned away due to our

[11:22] short calls at a great profit. So where do we go from here? Well, why do you think it's called the wheel? It's called the wheel because we sell below the market. The market rotates up to a higher price and we sell it and then we

[11:37] rotate back down to the put side. And what do we do? We start all over again and sell a put below where the stock price is, hoping to catch another opportunity to buy it at a great price and do it all over again. And guess

[11:52] what? If we never get the opportunity, we're still getting paid for trying every month because when we sell that next put for February, after our calls are gone and after the shares are gone, once that happens and we sell the put,

[12:06] once that happens and we sell the put, we get paid again. In this case, another 5.85, right down at the same strike price where we acquired the shares originally at that 595 put strike price. And we're collecting $585 in cash. And

[12:21] so on February 20th, just last week, as you can see, the Q's closed at 608.881. So it pulled back a bit from the previous month. And so what that means is that our put down at 595 expires worthless. And so that put just dies.

[12:37] And we just add that cash to our profit onto our profit table, which brings our grand total of wheel strategy profits to $5,813. Now, I'd like you to focus on a very important reality in all this, which you

[12:52] might have missed. And that is that we implemented the wheel strategy and made But did you ever think about what would have been the outcome with basically the same capital had we just bought the shares of the Q's back in October when

[13:06] we started the program when the Q's were trading at 60393? Well, they closed at 608.881 on February 20th. So, your gain on those shares

[13:18] would have been $488. But with the wheel strategy, we made $5,813. More than 11 times as much profit over that same fourmonth period because at the end of the day, the wheel strategy

[13:34] the end of the day, the wheel strategy is a strategic use of options to take advantage of price movements even on stocks which have hardly moved at all at the end of the day. And so what I'd like you to take away from today's video is

[13:47] that the wheel strategy is a very powerful option strategy that allows you to monetize the movements of solid stocks so that you're always creating cash flow opportunities and in cases like this example making a terrific

[14:01] return on a stock that basically didn't move at all. This is the kind of out-of-the-box strategy that options can open up for you once you begin to learn how options work. And when you do, the opportunities for pulling cash out of

[14:15] the markets becomes almost unlimited. Learning how to trade options is a great skill to have if you're interested in creating cash flow from the equity markets, even when they're hardly moving at all. Now, if you'd like to learn

[14:27] three more option strategies that our prot traders use, including the unique options trick that allows you to make money while you wait to buy stocks or money while you wait to buy stocks or ETFs at the price you want, and the

[14:41] options income strategy that allows you to make consistent money whether the market goes up or down or sideways, and how to make money on a stock or index trade, even if you're wrong on the direction, then click the link that's

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