Opportunity Details and FAQs

The Wheel

How to Start:

You can use The Wheel strategy with any stock brokerage account that enables you to buy and sell stock options. The most commonly used are Fidelity, Schwab, and Robinhood. TastyTrade and Tradier are two newer ones that are quickly becoming popular.

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Description:

The Wheel Strategy is a strategy that involves the selling of two types of stock options. We STRONGLY encourage you to watch the entire set of education videos we created on this topic so that you understand it. In addition, we have a weekly call and a weekly Discord channel where we discuss the Wheel Strategy and specific trades.

In the first step, you sell Cash-Covered Put Options on a specific stock (or index). The premium you earn from selling that Put Option is what provides you with income. This can be done as often as weekly.

There are two possibilities here…if the stock price does not decline to the Strike Price, the Put Option expires, you keep the premium, and nothing else happens. You repeat the process and earn more premium.

If the stock price falls below the Strike Price, you will likely be forced to buy the stock at the Strike Price (you still keep the premium). Now you own shares of the stock and move on to the next step.

In the second step, you sell Covered Call Options on the stock you now own. The premium you earn provides you with income. This can be done as often as weekly.

There are two possibilities here…if the stock price does not increase to the Strike Price, the Call Option expires, you keep the premium, and you keep the stock. You repeat the process and earn more premium.

If the stock price increases above the Strike Price, you will likely be forced to sell the stock at the Strike Price (you still keep the premium). You are back to where you started (cash in your account and owning no stock) but you have collected option premium on multiple occasions.

CLICK HERE to access the education videos on this topic.

The minimum investment varies depending on the stock you are using.

Return:

The Wheel Strategy is designed to provide cash flow from the stock market.

Expected Return: Results can range from only 2-4% per month up to 8-10% per month.
Time Period: Most stocks have monthly options available and many have weekly options. This enables you to determine the period of time you want to utilize in your portfolio. For the most part, we recommend selling weekly options as it seems to provide higher returns (for example, if you could earn 1% premium on a one-week option, that does not mean that you could earn 4% on a monthly option…the monthly option would usually pay less than 4%)

Risk:

Every investment has risks. Here are key factors to consider:

Large Drop in Stock Price:

This is BY FAR the biggest risk of this strategy
Example: Assume you sell a Put Option with a Strike Price of $9.50 on a stock that is currently at $10.00. If the stock goes up, stays flat, or decreases to $9.51 or more, you keep the premium and nothing else happens. If it drops to anything below $9.50 you would have to buy the stock for $9.50. If the price plummeted to $8.50 you would have to pay $9.50 for shares of a stock that are only worth $8.50.
You can reduce this risk by researching the stocks and using The Wheel Strategy with strong stocks that are less likely to drop 15% in a week (as in our example).
You can also Sell Put Options that are lower. In our example, you could have sold Put Options with a Strike price of $9.00 or even $8.50. The odds of these getting assigned to you are much lower (but your premium income is also much lower).
Once you are assigned a stock that has a lower price, you can then sell Call Options to generate revenue that compensates for the lower price. In the example above, if you sold Call Options that earned $.20 every week for about 8 weeks, the premium you earned would more than make up for what you lost due to the stock price decline.
It is also possible that the stock price recovers. If it dropped by 15% this week (as in our example) it could rebound the following week or two so that you do not lose any money on the stock price decline.

Large Increase in Stock Price:

This is not a risk of loss. It is the risk of “missing out.”
Assume you are assigned a stock at $10.00 and then you sell a Covered Call Option with a Strike Price of $11.00. If that stock price skyrockets to $12.50 that week, you are required to sell it at the Strike Price of $11.00 and you do not get the full increase in value.
With that said, you do get the increase in value from $10.00 to $11.00 as well as the premium you earned selling the Covered Call Option.

*This is not a comprehensive list of risks but highlights potential challenges to achieving expected results.

Liquidity:

When selling Cash-Covered Puts, you are required to have enough cash in your brokerage account to purchase the shares if they get assigned to you. Keep in mind that options control blocks of 100 shares. Therefore, selling ONE Cash Covered Put Option with a Strike Price of $10.00 will require you to have $1,000 of cash in your brokerage account. This cash cannot be accessed (withdrawn or used for other stocks) until the Put Option has expired. That depends on the Expiration Date you chose (which could be within a week, month, or many months).
Once a stock has been assigned to you, you can sell it or you can use it to sell Covered Call Options. Until the Expiration Date of the Call Options, you cannot sell or move that stock. That depends on the Expiration Date you chose.

Tax Consequences:

Premium Income earned is typically taxed as income.
When a stock is assigned, it is treated as any other stock for tax purposes. This means that selling it could result in short term capital gains or losses or long term gains or losses.

Fit in Portfolio:

The Wheel Strategy provides:

High Returns

Significantly higher cash flow compared to traditional investments.

Fast Cash Flow

Generates income almost immediately

Liquidity

You can liquidate funds or stocks once you are past the Expiration Date.

Risk to Principal

There is a possibility that the amount invested could decrease over time if you are forced to acquire (Assigned) stocks that have decreased significantly in value..

What the Process Looks Like:

Education

Learn how options work. Learn how The Wheel Strategy works. There are many variations and you can adjust your risk exposure by understanding them.

Research

Only consider The Wheel Strategy with stocks you are willing to own. Do not use it with stocks that have shown a recent pattern of declining values.

Commitment

Sell Cash-Covered Put Options on your selected stock(s).

Wait

Only two outcomes…the option will be assigned or it will not.

Next Step

Depending on the result (Assigned or not), you take the next step and continue to repeat the process.

Seriously…that’s it. This is one of the easiest and most passive opportunities.

Time Commitment:

Setup Phase

You need to understand exactly how Stock Options work. Depending on your level of knowledge and experience, that could take a few minutes to a few hours. Once you are past that, you have to research the individual stocks you want to utilize. Finally, you need to have an account set up that allows you to sell options. With most brokerage accounts, you have to request permission to have this ability added to your account. Overall…the setup could take a few hours.

Ongoing

There is not much to be done from the time you sell your Cash-Covered Put Option (or Covered Call Option) until the Expiration Date. After the Expiration Date, you need to decide what your next step is. This could take a few minutes to an hour or more…depending on the level of research you conduct. Even though most members prefer selling weekly Options, that means that we need to set aside time every week to take the next steps.

Due Diligence on the Business:

Education: It is essential that you understand how stock options work. This is the most important part of the due diligence.

Platforms: If you do not already have an account with a brokerage that allows options, you need to conduct some due diligence. The most common platforms are Fidelity, Schwab, and Robinhood…with TastyTrade and Tradier gaining ground.

Stocks: There are several components here…First, the biggest risk of this strategy is getting assigned a stock that is dropping in value. It is important to conduct research to make sure that the stock has a stable company behind it. Second, you should only use the strategy with a stock that you would be comfortable owning. You could own it for several months. Third, you need a stock that has some volatility. There are some stocks that have such a stable price, nobody will pay much money for an Option on it…which means you cannot collect much option premium.

Results:

Several members of Unbroken Investing have been using The Wheel Strategy for the past year.

✅ Overall results have been very good with multiple members earning returns of 6-10% per month or more.
✅ During the 4th quarter of 2024, we conducted a “competition” to see if Steve could outperform the S&P 500 with his Wheel Strategy. After two months, Steve was blowing away the market with a gain over more than 28% in those two months. However, that dropped significantly when the market corrected (December 9-23) and he finished the quarter up just 12%.
✅ The reason for the great results the first two months of the competition was because Steve was being very aggressive and seeking the highest Put Option premium he could get (within the portfolio of stocks he was willing to hold). This resulted in weekly gains of 3-4% almost every week. However, this aggressive strategy is what caused several of the stocks to get assigned to him (at a loss) in mid-December.
✅ This aggressive strategy could be a fit for some people. However, Steve changed his strategy to be a little less aggressive. Since then, he has been able to earn 1-2% per week without having any stocks assigned to him at a loss.

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