High IV vs. Low IV: Which Stocks Work Best for the Wheel?

Here's a question that comes up constantly: should I run the Wheel on high-IV stocks or stick with low-IV names?

The short answer? Both have their place, but understanding why makes all the difference.

Let me walk you through what actually matters when you're picking stocks for cash-secured puts and covered calls.

What We're Really Talking About

When traders ask about "high IV versus low IV," they're usually trying to figure out where they can collect the most premium without getting their face ripped off.

Fair question.

High implied volatility means options are expensive relative to historical norms. Low IV means they're cheap. The Wheel strategy, selling puts, getting assigned, then selling calls, works in both environments, but the mechanics change quite a bit.

The High IV Play: More Premium, More Problems

High-IV stocks pay better premiums. That part's obvious. If you're selling a 30-delta put on a stock with 60% implied volatility, you're collecting significantly more than the same strike on a 20% IV name.

But here's what doesn't show up in the option chain: that fat premium exists because the market expects bigger moves. You're not getting paid more out of generosity, you're getting paid because there's genuine uncertainty about where this stock might be in 30 days.

High IV typically shows up in a few scenarios:

Earnings season. Options premiums spike before quarterly reports because nobody knows what management's going to say. If you're comfortable with the binary risk of an earnings announcement, you can collect outsized premium. Just know that assignment risk jumps considerably.

Market stress. When the VIX climbs and correlations go to one, individual stock IVs tend to rise across the board. This can create opportunities if you're selective about which names you're willing to own.

Company-specific drama. Pending FDA approvals, litigation, management changes, acquisition rumors, anything that creates genuine uncertainty in the stock's near-term direction will inflate option prices.

The trade-off is straightforward: you collect more premium, but you're more likely to get assigned and potentially assigned at prices well below your strike. That $500 premium on a cash-secured put looks less appealing when the stock gaps down 15% overnight.

The Low IV Approach: Less Drama, More Compounding

Low-IV stocks are boring. Their option premiums are smaller. You're not collecting $500 per contract, you're collecting $150 or $200.

But here's what you are getting: predictability.

Low implied volatility typically shows up in established, profitable companies with stable business models. Think consumer staples, utilities, or blue-chip dividend payers. These stocks still move, but their ranges are tighter and their surprises are fewer.

The advantage isn't immediately obvious until you start tracking your results over time. With lower IV:

Assignment happens at better prices. When you do get put the stock, you're less likely to be sitting on a massive unrealized loss. Your basis is closer to current market prices.

Recovery is faster. If you're assigned and the stock dips further, the shallower volatility profile means you're not waiting months for mean reversion. You can start selling calls sooner at strikes that actually make sense.

Psychological capital is preserved. This matters more than most people admit. Watching a position go against you by 5% is different than watching it crater 20%. The former, you stick with your plan. The latter, you start making emotional decisions.

The downside? Your premium collection per trade is lower. You're running more of a volume game, which means you need more capital or more positions to hit the same income targets.

IV Rank: The Number That Actually Matters

Raw implied volatility can be misleading. A stock at 40% IV might be expensive or cheap depending on its history.

That's where IV rank comes in. It measures where current IV sits relative to its 52-week range. An IV rank of 80 means implied volatility is in the 80th percentile of its annual range, expensive. An IV rank of 20 means it's cheap.

For the Wheel strategy, I generally look for IV ranks above 50 for put selling. Below that, the premium often isn't worth the capital commitment unless I'm particularly bullish on the underlying.

But, and this is important, don't just chase the highest IV rank you can find. A stock with an IV rank of 95 might have that ranking because something genuinely terrible is happening. Context matters.

Building a Balanced Approach

Most traders who succeed with the Wheel long-term don't pick one lane. They run a mix.

Here's what that might look like:

Core positions in low-IV names. Maybe 60 to 70% of your Wheel capital goes into stable, boring stocks with IV ranks between 30 to 60. These are your compounding machines. Consistent premium, manageable risk, regular assignment and exit cycles.

Opportunistic positions in high-IV names. The remaining 30 to 40% goes toward higher-premium opportunities when IV ranks spike above 70. These positions require closer monitoring and tighter risk management, but they boost your overall portfolio yield.

Position sizing reflects volatility. Your high-IV positions should be smaller in absolute dollar terms. If you're comfortable with $10,000 per position in a low-IV stock, maybe you're only putting $5,000 into a high-IV name. Same number of contracts, different risk exposure.

What Actually Drives Your Decision

Theory is fine, but here's what matters when you're sitting at your screen deciding where to deploy capital:

Your time horizon. If you're working full-time and can only check positions once a day, high-IV stocks that gap around are dangerous. You need the stability of lower volatility.

Your capital base. Smaller accounts benefit more from high-IV premium because you're trying to generate meaningful dollar amounts from limited positions. Larger accounts can afford the volume approach with lower-IV names.

Your assignment comfort. Some traders hate assignment, they view it as plan failure. Others are indifferent; they're happy to own stock and sell calls. They look at the underlying stock as simply a tool to create income on a consistent basis, and are fine with the ups and downs of the underlying stock of choice. High IV increases assignment frequency, so know your preference.

Market environment. In stable, grinding-higher markets, low-IV stocks often perform better for the Wheel because you're capturing small, consistent gains without much risk. In volatile, whipsaw markets, high-IV names can actually be safer because the elevated premiums provide larger cushions against adverse moves.

The Execution Framework

Here's how I think about stock selection for the Wheel:

Start with fundamentals. I don't care how fat the premium is, if the company's business is deteriorating, I'm not interested. I need to be comfortable owning the stock at my strike price, potentially for months.

Check IV rank. I want to see at least 40-50 for put selling to be worthwhile. Below that, I'm likely better off waiting or finding a different name.

Assess the reason for elevated IV. If it's earnings, fine, I know what I'm getting into. If it's an FDA decision or merger uncertainty, I need to understand the binary outcomes and whether I'm okay with both.

Size appropriately. Higher IV gets smaller position sizes. I'm not risking 15% of my account on a single high-IV position no matter how attractive the premium looks.

Plan the full cycle. Before I sell the put, I'm already thinking about what strikes I'd be comfortable selling calls at if assigned. If there's no clear path to exit with my target profit, I don't enter.

Common Mistakes to Avoid

The biggest error I see? Chasing premium without respecting volatility.

A trader sees a $600 premium on a put and thinks they've found free money. Then the stock drops 25% and they're stuck in a position that will take six months to recover, if it recovers at all.

Second mistake: treating all high-IV situations the same. There's a difference between a quality company experiencing temporary uncertainty and a troubled business facing existential questions. One is an opportunity; the other is a trap.

Third: position sizing based on premium collected rather than risk assumed. Just because you can collect more premium doesn't mean you should deploy more capital. Your position sizes should reflect the underlying volatility, not the option prices.

The Real Answer

So which works best, high IV or low IV?

Both, when used appropriately.

High-IV stocks work when you're selective, when you're sizing conservatively, and when you're genuinely comfortable owning the underlying. They boost your portfolio's yield and take advantage of temporary mispricings in option markets.

Low-IV stocks work as core holdings, as consistent compounders, and as positions you can run with less active management. They won't make you rich quickly, but they won't blow up your account either.

The real skill isn't picking one over the other. It's knowing which environment you're in, adjusting your position mix accordingly, and maintaining the discipline to let probabilities play out over dozens of trades rather than judging your approach based on any single outcome.

Most traders who wash out of the Wheel do so because they optimized for premium without respecting risk. The ones who succeed long-term? They build balanced portfolios, they size positions appropriately, and they understand that sustainable income comes from repeatability, not from maximum premium on every trade.

Probabilities over predictions,

Andy Crowder

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Disclaimer: This is educational content only. Not investment, tax, or legal advice. Options involve risk and aren't suitable for all investors. Examples are illustrative. Real results will vary. Talk to professionals before you risk real money.