How to Pick the Best Stocks for the Wheel Strategy: A Professional Trader’s Guide

Every options trader eventually asks the same question: “What stocks should I trade with the Wheel Strategy?”

The Wheel Strategy, selling cash-secured puts, taking assignment when needed, and then writing covered calls, is simple in theory but deceptively complex in execution. The key to making it work isn’t the mechanics. It’s the stock selection.

Pick the wrong stock and you end up “wheeling” into dead money. Pick the right stock and you create a sustainable income engine. After two decades of trading the Wheel professionally, I’ve learned there are a few timeless traits that separate candidates worth selling puts on from those that are better left alone.

Step 1: Liquidity Comes First

Before you look at fundamentals or volatility, you need to make sure the options market itself is tradeable. Liquidity is the lifeblood of any Wheel candidate.

• Tight Bid/Ask Spreads: Look for spreads no wider than $0.05-$0.10 in liquid names. Wider spreads eat into your edge.

• High Open Interest & Volume: This ensures you can get in and out of trades without slippage.

• Major ETFs & Blue Chips: SPY, QQQ, DIA, and sector ETFs are always liquid; so are names like AAPL, MSFT, and JPM.

Liquidity is what keeps a strategy repeatable. Without it, you’re gambling against the spread.

Step 2: Volatility, But Not Too Much

The Wheel thrives on premium, but volatility is a double-edged sword. Too little, and you’re collecting nickels. Too much, and you’re catching falling knives.

• Implied Volatility (IV): Sweet spot is usually 20 to 50 IV, enough premium to make it worthwhile, without outsized risk.

• IV Rank (IVR): IVR tells you where current implied volatility sits relative to the past year. A reading of 35+ means volatility is elevated compared to its history, not extreme, but high enough that the options market is pricing in more movement than usual. For Wheel traders, that’s gold.

• Avoid Biotech & Meme Stocks: They may offer rich premiums, but assignment risk is extreme.

• Target Consistency: Names with steady, moderate volatility (think ETFs, mega-cap stocks) allow smoother reinvestment.

Remember: you’re not chasing the highest premium, you’re chasing repeatable premium.

Step 3: Fundamentals Still Matter

Many income traders overlook fundamentals, but if you’re assigned shares, you’ll own the stock. Better to own something you don’t mind holding for months.

• Dividends: Not mandatory, but helpful when holding shares.

• Sectors with Stability: Utilities, financials, consumer staples, and large-cap techs tend to wheel better than speculative plays.

Here’s the litmus test: Would you be comfortable owning this stock outright if the Wheel gave you shares tomorrow? If the answer is “no,” skip it. Comfort with ownership is the foundation of the strategy.

Step 4: Price Range and Capital Efficiency

The Wheel ties up capital. That’s why price range matters.

• Stocks in the $20-$100 Range: Ideal for balancing premium collection with manageable position size.

• ETFs for Diversification: IEF, EEM and sector ETFs like KRE, XLF, XLE, or XLK spread risk across dozens of names.

• Use Portfolio Margin Wisely: Allocate so that no single position threatens more than 5-10% of your account.

The Wheel should work with your capital, not lock it down.

Step 5: Probability and Technical Alignment

Options traders ignore technicals at their own peril. Use simple tools to improve timing:

• RSI (2, 7, 14): Avoid selling puts into extreme overbought conditions.

• Breadth Measures ($SPXA50R, A/D Line): Selling premium works best when the broader market is stable or rebounding.

• Support Levels: Place put strikes below key technical support to improve probabilities.

This doesn’t mean you’re predicting the market. It means you’re stacking the deck in your favor.

Example: AAPL vs. PLTR

• Apple (AAPL): Liquid options, moderate IVR, stable fundamentals, and a global brand. Even if assigned, you own a durable business.

• Palantir (PLTR): High volatility, speculative fundamentals, and wide bid/ask spreads. Premium looks attractive, but assignment risk is high, and rolling can get tricky.

The contrast is clear: AAPL fits the Wheel; PLTR is a gamble.

Final Checklist for Wheel Stocks

Here’s a quick decision framework before committing capital:

✅ Options liquidity (tight spreads, high OI)
✅ IV Rank 35+ and IV in the 20 to 50 range
✅ Strong fundamentals, not speculative hype
✅ Price range fits your portfolio size
✅ Technical support + market context align

And ultimately, it should be a stock you feel comfortable owning. If you’d lose sleep holding the shares, it’s not a true Wheel candidate. This isn’t just about trading premium; it’s about managing risk in a way that fits your temperament and capital.

Closing Thoughts

The Wheel Strategy isn’t about chasing the biggest premium. It’s about creating a repeatable system where probabilities, fundamentals, and risk management work together.

If you stick to liquid, stable names, stocks and ETFs you wouldn’t mind owning, the Wheel becomes a consistent income engine. Stray into speculative, illiquid names, and you’ll quickly learn why the Wheel is often misused by traders chasing yield.

Like most things in trading, the stock you choose determines your outcome. The strategy is simple. The discipline isn’t.

Probabilities over predictions,

Andy Crowder

Founder and Chief Options Strategist, The Option Premium 

Related Reading 📘

• How to Sell Cash-Secured Puts and Covered Calls for Steady Returns in Bull, Bear, and Sideways Markets

• Managing a Losing Cash-Secured Put (CSP): A Professional Trader’s Guide

• How to Profit with The Wheel Strategy: A Step-by-Step Guide to Consistent Income Using a Conservative Options Strategy

🎯 Ready to Elevate Your Options Trading?
Subscribe to The Option Premium, a free weekly newsletter delivering:
✅ Actionable strategies.
✅ Step-by-step trade breakdowns.
✅ Market insights for all conditions (bullish, bearish, or neutral).

📩 Get smarter, more confident trading insights delivered to your inbox every week.

📺 Follow Me on YouTube:
🎥 Explore in-depth tutorials, trade setups, and exclusive content to sharpen your skills.

📘 Join the conversation on Facebook.