Market Movements

^{*Weekly Return is calculated as market open of the previous Wednesday, to market close this Tuesday (yesterday); Current Level is Tuesday’s (yesterday’s) close.}

Weekly Rollout

The U.S. markets are on eggshells with the S&P 500 stuck in a holding pattern, while bond yields creep higher and the dollar glides lower. Trade worries remind us that global tariff frictions are still sending shivers through economic forecasts. Investors are clearly bracing for bumps—evident in the tidal wave of 3.7 million S&P 500 index options, a record-breaking wave, as volatility takes center stage. Options activity seems to be tilting defensively, as traders are favoring puts over calls, along with high-volume names like Nvidia and Tesla.

Meanwhile, the Trump–Powell saga hits another twist. The president is backtracking on firing the Fed Chair—labeling Powell a “numbskull” but predicting he’ll be out “soon anyway.” Treasury Secretary Bessent also chimes in, advising a full-term finish and urging a broader Fed overhaul. With the Fed meeting next week, where they are expected to hold steady (95% odds of no rate change), we'll just have to wait for what comes after the smoke clears.

“Good-To-Know’s”

The strategy begins by selling a put option on a stock you'd be willing to own, at a strike price you would be willing to pay. If the stock stays above the strike price, the option expires worthless, and you keep the premium. If it falls below, you're assigned the shares—now at a lower effective cost.

From there, you sell covered calls on the shares you now own. Similarly, you repeat until called away—at which point, the shares are sold at the strike price, and you repeat the process. It's a patient, income-oriented approach that thrives in sideways or moderately bullish markets. It is a great one to have in your tool belt.

Quote(s) I Like

Thought Throttle

The Wheel Strategy, along with other option selling strategies, has often been critiqued as "picking up pennies in front of a steamroller." However, while that may be the case in some instances, there are important assumptions baked into that critique.

1) It assumes that the premiums we’re collecting are mere pennies (or not worth it), and 2) it assumes that assignment is a steamroller or catastrophe.

Neither of those may be true when you enter your trades strategically.

In an ideal scenario, there is no steamroller. Assignment would be welcome, since we’re only selecting stocks we believe in long-term and would be happy buying via the put. The same goes for covered calls. There shouldn’t be a steamroller there either, as we should be OK selling stock at a price we deem to be overvalued.

Of course, there’s always the possibility of selling a cash-secured put and the stock falling substantially, but that risk exists with buying shares outright as well. It’s not a unique risk to the Wheel.

If you buy a stock at $50 and it crashes to $20, you’re out $30. But if you sold a put with a $40 strike and the stock drops to $20, you’re only down about $20—not to mention the premium you collected will cushion some of that loss.

However, if you were assigned at $40 in the example above, you’d likely find it difficult to sell calls for any meaningful premium near that strike. The stock has dropped too far, and you're stuck waiting for a bounce. This is one of the trade-offs in the Wheel Strategy—it can force you to be patient when the price moves too far in either direction, making it hard to continue the cycle efficiently.

To handle this, remember that large drops usually stem from meaningful changes in the business itself—a risk common to all equity investors. If the fundamentals have shifted, it may be time to reassess your thesis. But if nothing material has changed and you're still confident in the company, holding the stock can be the right call. You could even sell another put further out of the money—say, at $15 in our example—to lower your cost basis and stay active while waiting for a recovery. The world is your oyster.

The analogy also falls apart when speaking about “pennies.” If there’s no value in the trade, we shouldn’t take it. If you’re selling options on a stock and are expecting less of a return than you would get from the S&P 500, then sure, the premiums may be like picking up pennies. This is especially the case when trading stocks with low volatility and wide bid-ask spreads.

In these scenarios, there is usually too much risk, not enough reward. A good rule of thumb is to target 2% per month, though this will vary and should not be a “hard and fast” rule. This should be tailored towards your goals and tolerance level, but understand that for increased risk, there absolutely has to be increased expected returns—or it wouldn’t be worth it.

When considering the “pennies,” don’t let your emotions convince you that small premiums aren’t worth the effort. First, you’re learning a valuable financial skill that will benefit you throughout your life. Second, those premiums stack up faster than you think. Compounding sneaks up on you—in the best way.

Compounding Broken Down

Starting with just $5,000, here’s how your account could grow with consistent monthly returns of 1%, 1.5%, and 2%. It highlights the power of compounding—even without adding more capital. The differences get big fast.

Note…

This is just an illustration based on steady monthly returns of 1%, 1.5%, and 2% over 10 years. In real life, returns aren’t smooth—markets fluctuate, trades don’t always go as planned, and you won’t be compounding in a perfect vacuum.

It also doesn’t include things like trading costs, shifts in strategy, or the occasional dud trade. The point here is just to show how small, consistent gains can snowball over time. Use this as motivation—not a promise.

Even so…

This illustration of compounding should give you the confidence that you're not wasting your time. Mastering this skill pays off. This isn’t gambling with options, it should eventually feel almost boring—because it avoids the wild wins and painful losses you see on WallStreetBets. Instead, it’s about stacking consistent income with a long-term investor’s mindset.

Use the tools. Stay patient. Keep stacking.

Trade Mechanics

In this example, we will compare two opportunities for cash-secured puts: one in a high-volatility growth stock (HIMS) and one in a lower-volatility blue-chip (BAC). Each offers a different balance of risk, return, and exposure. Each strike selected is the ~30 delta option with an August 15th expiration.

Let’s take a look:

The HIMS put is clearly the high-flyer here: a juicy 7.14% return in just 24 days, or an 185.56% return annualized—if all goes smoothly. That’s the power (and risk) of volatility. Sellers of HIMS get a deep discount if assigned and a substantial payday if not.

BAC, in contrast, offers a tamer 1.33% return for the same timeframe—equivalent to ~19.6% annualized. The lower premium reflects its large-cap, lower-volatility profile, and the tighter distance to strike means less breathing room, but also less drama.

For capital efficiency, both trades require just under $5,000 in cash, but the risk profiles diverge. BAC’s setup is built for the slow-and-steady income crowd. HIMS? It’s for those willing to hold a growth name through chop and headline risk—HIMS requires a certain level of risk tolerance.

Keep in Mind…

Premiums can spike around earnings (like with HIMS), and return figures assume smooth expiration with no early assignment or slippage. Be prepared to own 100 shares if assigned, and ensure your capital is fully available.

Less liquid tickers may have wider bid-ask spreads, and tax treatment varies by account—most ETF options are taxed as short-term gains. Market conditions shift quickly, so position size and plan accordingly.

Basically, there is nuance. If you cannot fully articulate your position (risks, expected returns, etc.) to your mom or grandma, then you likely do not know it well enough.

This is for educational purposes only—not a trade recommendation. Remember to always do your own due diligence and consult a financial advisor before making investment decisions.

Throttle Q&A

Can I sell options in a retirement account like a Roth IRA?

Yes—you can sell covered calls and cash-secured puts in an IRA (including Roth), as long as your broker allows it and you've completed the right approval level.

The key is that the account can't use margin (a few exceptions), so you’ll need the full cash amount to secure puts or own the shares for calls. The benefit? No taxes on gains in a Roth IRA, even if you’re raking in monthly premiums. Just be careful: you can’t deduct losses either, so risk management matters even more.

Check out this previous edition for more information on selling options in qualified plans.

How do earnings reports affect put premiums?

Option premiums often inflate before earnings, because everybody knows that the stock is more likely to move and thus a higher expected price swing. This phenomenon is called implied volatility (IV) expansion.

Selling puts during this time means juicier premiums, but also higher risk of assignment. After earnings, that IV drops quickly—called IV crush—shrinking option premiums. So, if you sell puts into earnings, you’re collecting more premium but walking a tightrope. Be careful.

What should I look for when picking stocks for the Wheel Strategy?

Look for liquid stocks with decent options volume, manageable prices, and underlying businesses you’d be okay (or even ecstatic) with holding. Moderate volatility helps—you want solid premiums without wild swings. Avoid earnings announcements if you’re risk-averse, and stick with names that have consistent support levels or dividend-paying reputations. ETFs like QQQ, SPY, or DIA also work well for a more diversified, conservative approach.

Check out this previous edition for more information on how to pick which stocks to utilize for Cash-Secured Puts.

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