Phase 01
Cash-secured puts
The entry leg of the wheel. How to pick strikes, read the greeks, think about expiration, and price the opportunity cost of the cash you are locking up.
What a cash-secured put is
A cash-secured put is a short put option for which the full assignment cost is held aside as cash in the brokerage account. You are agreeing to buy one hundred shares of an underlying at the strike price, at any time before expiration, in exchange for premium collected up front. The cash reserve ensures that if assignment happens, you can actually pay for the shares without being margin-called.
Strike selection
Strike selection is governed by delta. A 0.20-delta put is approximately eighty percent likely to expire worthless. The premium is calibrated by the market to match that probability, so there is no free lunch — the strategy is picking a delta band that matches your actual tolerance for assignment, not finding a delta that is "mispriced."
The wheeler's job is to select a strike where assignment is a tolerable outcome, because roughly one in five trades in the 0.20-delta band will be assigned over time. If you cannot stomach assignment at the strike, lower the strike (and the premium). The premium is the insurance payment; the strike is the insurance coverage.
Reading the greeks
| Greek | What it tells you | Wheel relevance |
|---|---|---|
| Delta | Probability of finishing in-the-money, and rate of option price change per dollar of stock move. | Primary strike selection tool. 0.15–0.25 is the band. |
| Theta | Daily premium decay as expiration approaches. | The source of income. Accelerates in the last 30–45 days. |
| Vega | Option price change per one-percent change in implied volatility. | Short puts are short vega. IV crush helps you; IV expansion hurts. |
| Gamma | Rate of delta change per dollar of stock move. | Explodes in the last week. Why 25 DTE is the shorter end of the band. |
Expiration cycles
Monthly options (third Friday of the month) are the cleanest instruments for a wheel program. They have the deepest liquidity, the tightest bid-ask spreads, and the most predictable volume patterns. Weeklies can be profitable but require more management attention and carry higher gamma risk near expiration.
The standard wheeler's cycle is 30–45 DTE at entry, managed through the lifecycle, and either closed at 50% of max profit or rolled forward before 21 DTE. The "21 DTE rule" (close or roll positions when they reach 21 days to expiration) is a simple operational heuristic that avoids the worst of the gamma risk window.
Opportunity cost of locked cash
Every cash-secured put locks up strike × 100 dollars of cash. That cash could otherwise be in Treasuries or a money-market fund earning a risk-free rate. A full accounting of the trade requires subtracting the risk-free yield on the locked capital from the premium collected.
Example: a $50 strike put pays $0.75 premium with 30 DTE. Gross return: $75 on $5,000 locked = 1.5% for 30 days = 18% annualized. Subtract 4.5% Treasury yield on that $5,000 for 30 days ($18.75). Net wheel return: $56.25 on $5,000 = 1.125% for 30 days = 13.5% annualized. Still fine. But the raw premium overstated the strategy's economic edge by about a third.
When to close, roll, or let expire
- Close at 50% of max profit. If the put you sold for $0.75 is now trading at $0.37, buy it back. You have locked in half the premium in much less than half the expected time. Free the capital, move on.
- Let expire worthless. If you are inside 7 DTE and the option is so far out of the money that it is trading for a few cents, let it expire. Paying commissions to close for two or three cents erodes the math.
- Roll when threatened. If the stock is approaching your strike and you still like the underlying, roll the put out in time (often out and down) to collect additional credit and buy yourself more room. Never roll for a debit — if the credit has disappeared, the trade is telling you the thesis has weakened.
- Accept assignment. If you chose the underlying well, assignment is a clean transition to the covered-call leg. Do not reflexively avoid it.