Wheel Strategy Calculator
The wheel sells a cash-secured put, takes assignment if the price falls through the strike, then sells covered calls against the shares. The premium is known up front and the obligation is to buy at the strike, so the cash it reserves is the number that governs the position.
Premium, cash, and the price you commit to
Defaults are two contracts of a 50 strike put sold for 1.20, with 30 days to expiry.
One contract is 100 shares, which is where every factor of 100 comes from. The cash figure assumes the put is genuinely cash-secured — selling it on margin removes that reserve and changes the risk entirely.
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How the number is built
Selling a put collects a premium in exchange for an obligation to buy 100 shares per contract at the strike if the buyer exercises. Three quantities follow from that.
Premium = premium per share × 100 × contracts. Cash reserved = strike × 100 × contracts. Cost if assigned = strike − premium.
The cash reservation is the input people leave out. The premium is small and the capital it ties up is not, and a return that ignores the denominator is not a return.
A worked example
Take the defaults: two contracts of a 50 strike put, sold for 1.20, thirty days out.
The premium is 1.20 × 100 × 2 = 240.
The cash reserved is 50 × 100 × 2 = 10,000.
So the premium is 2.40% of the capital committed for thirty days.
And if assigned, your cost is 50 − 1.20 = 48.80 a share — you paid 50 and kept 1.20.
The premium is yours regardless of what happens next. That is the one certain part of the trade and it is the reason the arithmetic feels better than the outcome sometimes is.
Annualising is an assumption
The number everybody wants is the annualised one, and it is arithmetic on a scenario. 2.40% over 30 days scaled to 365 days is 29.20%, and that figure assumes twelve more cycles at the same strike, the same premium and no assignment.
None of those hold in practice. Premium expands when volatility rises and collapses when it falls, so the cycles that pay best are the ones where the underlying is most likely to move through your strike.
Which is why this page does not print the annualised figure as a result. It is a projection, and presenting a projection next to a measured number invites reading it as one.
What it prints instead is premium per day the cash is tied up — 8.00 on the defaults. That is a measured rate rather than a forecast, and it is the number that compares two candidate trades fairly: a 45-day put paying 300 earns 6.67 a day against this one’s 8.00, on capital that is unavailable half as long again.
Assignment is not the failure
Being assigned means the price fell below your strike and you now own the shares at 48.80 net. That is the deal you were paid for. The strategy continues by selling covered calls against those shares, which is where the name comes from.
The genuine risk is not assignment but a fall far below it. At 30 the shares are worth 6,000 against 9,760 paid, and the 240 of premium is not a meaningful offset. The put’s downside is the strike minus the premium, all the way to zero.
The covered call leg then caps the upside while the downside stays open, which is the structural asymmetry the strategy carries in exchange for its steady income.
The capital is the real constraint
Two contracts of a 50 strike reserve 10,000, and that is a modest example. The same two contracts on a 200 stock reserve 40,000, and on a 400 stock 80,000 — for premium that scales with the price but not with anything else.
So the strategy is gated by account size in a way its returns do not advertise. Running it on several underlyings at once multiplies the reservation, and a 25,000 account can carry perhaps two positions on ordinary stocks before the cash is fully committed.
That constraint is also what makes it survivable. A fully reserved put can be assigned without forcing anything: the cash is there, the shares arrive, and the call leg starts. Sold on margin, the same assignment arrives as a demand for money the account does not hold.
What comes off the premium
Two contracts is two commissions, and often four across a full cycle. Against 240 of premium a few dollars a contract is a visible percentage, and the option bid-ask spread costs more than the commission does on anything thinly traded.
On this site’s shared series a round trip measures about 2% of the median bar range, and an
illiquid option chain is far worse than that. The figures are in
research/series-measurements.json.
The original data
Of the 24,971 unique videos in research/search-study-corpus.jsonl, 6 have an instruction-shaped
title about wheel returns, at a median of 67,411 views across 5 channels — and 0% are
calculator-shaped. Covered call payoffs appear in 17 at 31,993 and credit spreads in 9 at 12,476.
The counts come from site/rank_tools2.py, which deduplicates by video id.
Six videos at a 67,411 median, none of them a calculator. The wheel is discussed constantly and the capital requirement — the number that decides whether anyone can actually run it — is almost never put on screen.
The answer to the question on that chart is that a closer strike pays more because assignment is more likely, and that is the entire trade-off. The option market prices the probability into the premium, so a larger premium is not a better deal — it is the same deal with the odds moved. Choose the strike you are content to own at, then accept whatever premium that strike pays.
When it fails
The awkward case is the quiet market the strategy supposedly wants. Low volatility means small premium, so the cycles that carry the least assignment risk also pay the least, and the temptation is to move the strike closer or the expiry further out to restore the income. Both increase the risk that produced the premium in the first place, and the account can be running far more exposure than it was a year earlier without any decision having been made to do so.
The second failure is selling on margin rather than cash. The reserve is what makes it survivable.
A third is annualising a good month. Volatility is not constant and neither is premium.
A fourth is selling against something you do not want to own. Assignment is half the strategy.
A fifth is ignoring the dividend date. Early assignment on the call leg clusters around it.
And a sixth is counting the premium as profit before expiry. It is received, not yet earned.
Related
Cash-secured put is the first leg and where the capital requirement comes from. Covered call is the second leg after assignment. And options covers the contract mechanics both legs rely on.
The mistake I made early was thinking of the premium as the return and the assignment as the thing that went wrong. It is the other way round. You are being paid to commit to a purchase price, and if you would not happily own the shares at that price, no premium makes the trade sensible — it just makes a bad purchase slightly cheaper.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.