1. Objective
Use cash-secured puts to accumulate quality stocks/ETFs at a discount. Once assigned, sell covered calls on the shares to generate monthly income. This approach creates a repeatable, income-focused wheel strategy.
2. Account Requirements
- Margin or cash account with Level 2 options trading approval
- Capital to back 100 shares per trade Average $10,000 account. (e.g., $5,000 for a $50 stock)
- Comfort holding underlying stocks during market downturns
Phase 1: Entry via Cash-Secured Puts
3. Asset Selection Criteria
Choose stocks or ETFs that are:
- Liquid and optionable (tight bid/ask spreads)
- Moderately volatile (ideal beta: 0.8–1.5)
- Strong fundamentals, dividend-paying preferred
- Affordable (stock price under $150 ideal)
4. Put Option Selection Rules
Expiration: 2 to 4 weeks out (weekly or monthly)
Strike Price:
- Pick a strike 1–3% below the current price
- Choose delta 0.20–0.30 (lower probability of assignment)
Premium Target:
- Aim to generate 0.8%–1.2% of strike price per month
- Example: Sell 1 put at $400 strike, 3 weeks out, premium $4
→ $400/$40,000 = 1% return for 3 weeks
Cash-Secured:
- Keep enough cash to buy 100 shares at the strike if assigned
5. Put Management Rules
- If price stays above strike → Keep full premium, repeat
- If price drops below strike → Assigned the stock → move to Phase 2
- Rolling: If the stock drops slightly and you’d prefer not to take assignment, consider rolling down/out before expiration
Phase 2: Sell Covered Calls on Assigned Shares
6. Covered Call Selection Rules
Expiration: 2 to 4 weeks out
Strike: 1–3% above current stock price
Delta: ~0.25–0.35
Premium Goal: 1% return/month from call premium
7. Covered Call Management
- If stock stays below strike → Keep shares + premium → repeat
- If stock rises above strike → Called away = gain on stock + call premium
- Optionally roll call up/out to avoid assignment and capture more upside
Repeat the Cycle
- If called away, return to cash-secured puts to try to re-enter position
- Rinse and repeat monthly
8. Risk Management
- Never risk more than 10–20% of your portfolio in a single trade
- Diversify across 3–5 tickers
- Avoid puts before major earnings reports unless you want to own post-earnings volatility
- Monitor implied volatility: higher IV = better premiums, but more risk
9. Income Expectation (Example)
- Assume selling puts/calls on 3 tickers each with $10,000 capital
- Target 1%/month = $100 per position
→ 3 positions = $300/month or $3,600/year, plus possible dividends or gains
10. Performance Tracking Spreadsheet
Track each trade with:
- Ticker
- Trade type (Put or Call)
- Strike / Expiry
- Premium received
- Assigned or not
- Realized gain/loss
- Annualized return
Strategy Summary
| Market Behavior | Strategy | Outcome |
|---|---|---|
| Price stays flat | Sell put → Keep premium | +Income |
| Price drops | Assigned → Sell covered calls | +Shares + Premium |
| Price rises | Covered call exercised | +Capital gain + Premium |
