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Wheel Strategy Calculator

The wheel turns until the stock falls past your put strike. Enter both legs to see the return, the cash it ties up, and the cost basis you actually end up with.

Step 1 — cash-secured put

Step 2 — covered call, if assigned

Effective cost if assigned—
Put return on cash secured—
Put return, annualisedenter days
Cash you must hold—
Full cycle return, if called away—
Full cycle, annualisedenter both day counts

The wheel earns a steady premium and accepts the full downside of owning the shares. It works until the stock falls well below the put strike, at which point you own it at a loss and every call worth selling is below your cost — the position stops turning and becomes a holding.

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The cycle

  1. Sell a cash-secured put at a strike where you would be happy to own the shares. Collect the premium.
  2. If it expires worthless, repeat. This is the part that produces a steady, unremarkable income.
  3. If assigned, you own the shares at the strike. Your effective cost is strike − premium.
  4. Sell a covered call above that cost. If assigned, the shares go and the cycle restarts.
put return       = premium ÷ strike
effective cost   = strike − premium
full cycle       = (call strike − effective cost + call premium) ÷ put strike

The number that matters is the cost basis, not the premium

A $50 put sold for $1.20 gives an effective cost of $48.80. That is the headline on this page for a reason.

The premium makes the shares feel cheaper than they are. What actually happened is that you agreed to buy at $50 and received $1.20 for the agreement — so if the stock is at $44 when assigned, your position is down $4.80 per share on day one, not up $1.20. The put premium is real and it is small relative to what a genuine decline does.

Judging the wheel by premium collected rather than by cost basis is how a portfolio of "income" positions turns out to be a portfolio of stocks bought above their current price.

The cash nobody counts

A cash-secured put on a $50 strike ties up $5,000 per contract for the duration.

That is the true denominator. A $1.20 premium is 2.4% on that cash over thirty days — roughly 33% annualised if it repeats, which is an attractive number and assumes twelve consecutive uneventful months.

Selling the put on margin instead raises the return by lowering the denominator, and removes the thing that made the position conservative. It is no longer a cash-secured put; it is a naked one with a different name.

Where the wheel stops turning

This is the failure mode, and it is not exotic — it is the normal outcome of a stock that keeps falling.

The stock drops well below your strike. You are assigned at $50 with an effective cost of $48.80, and the shares are now $38. Every call strike with worthwhile premium is below $48.80, so selling one locks in a loss. Selling above your cost collects almost nothing.

The wheel has stopped. You are no longer running a strategy, you are holding a stock and waiting, and the position that was chosen for income is now a directional bet you did not size as one. The calculator warns when the call strike sits below the effective cost, because that is the moment the trade changes character.

The defence is entirely in step one: only sell puts on something you would hold at that price anyway, and size it as if assignment is certain — because eventually it is.

FAQ

What is the wheel strategy?

Selling cash-secured puts until assigned, then selling covered calls on the resulting shares until they are called away, then starting again. It converts a stock position into a stream of premium and accepts full ownership risk in exchange.

How do I calculate the return on a cash-secured put?

Divide the premium by the strike, since the strike multiplied by 100 is the cash you must hold per contract. A $1.20 premium on a $50 strike is 2.4% for the period, which annualises to roughly 33% if repeated monthly.

What is my cost basis after assignment?

The strike minus the premium received. Assigned at $50 having collected $1.20 gives an effective cost of $48.80, and that is the number every subsequent decision should be measured against.

What happens if the stock keeps falling?

You hold shares above their market price and the calls worth selling are all below your cost basis. Selling them locks in a loss; selling above cost earns almost nothing. This is the main risk of the wheel and it is not rare.

Is the wheel a low-risk strategy?

No — it carries the full downside of owning the stock, reduced by the premiums collected. It lowers volatility and caps upside. The premium is compensation for the risk, not a reduction of it.

This is the plan. What did you actually do?

A calculator tells you the size you should have taken. It cannot tell you the size you took at 2pm after two losers, or how often your stop moved once price went against you. Drop in a statement from MT4/MT5, a broker CSV or a crypto export and see the answer for your own last 90 trades.

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