How to Build a Long-Term Dividend Portfolio with the Wheel Strategy

The Market’s Gift to Options Sellers

Over the past few weeks, the market has delivered exactly what disciplined options sellers wait patiently for—elevated volatility, expanding opportunity, and a chance to lean into what we do best: sell fear at a premium.

With implied volatility rising across the board, we’ve had the green light to open up the full options playbook. We’ve deployed bear call spreads when conditions warranted it, leaned into bull put spreads when the risk/reward aligned, and sprinkled in a few iron condors to take advantage of wider expected ranges. And for those of us who see value in the rubble, we’ve quietly added to positions in beaten-down names using one of my favorite approaches: the Poor Man’s Covered Call—a strategy that lets you gain exposure to quality companies without tying up excessive capital.

But even with all the tactical flexibility the current market offers, I keep coming back to one strategy that quietly does what few others can—the Wheel. It’s particularly appealing for those of us looking to accumulate shares of high-quality dividend-paying stocks at discounted prices. With many of these names now yielding 5% or more, the Wheel offers a structured way to generate income through premium collection while gradually building long-term positions in companies we actually want to own.

The Wheel Strategy: Premium, Probability, and Patience

Among income-focused options traders, few strategies match the simplicity and repeatability of The Wheel. It doesn’t rely on predictions. It doesn’t ask you to call tops or bottoms. It simply rewards patience and discipline in a probabilistic game.

If you’re a trader who values structure over guesswork—and prefers building income through steady, repeatable trades—the Wheel Strategy should have a permanent place in your playbook. It’s especially useful if you’re looking to accumulate shares of dividend-paying stocks at a discount, while collecting premium along the way.

The beauty of the Wheel lies in its mechanical nature. This isn’t a speculative swing trade. It’s a high-probability income strategy that gives you the chance to collect option premium while gradually building a portfolio of dividend stocks you’d be comfortable owning anyway.

And right now, with volatility, and in turn options premium, high across the board, it’s especially compelling.

Using Elevated Volatility to Accumulate High-Yield Dividend Stocks

Let’s say I want to start building positions in a handful of high-quality dividend stocks—companies currently yielding 5% or more. That alone is attractive for income-focused investors. But what if we could do better? What if we could get paid to potentially buy these stocks at a discount?

That’s exactly what the Wheel Strategy offers: a mechanical, risk-managed way to generate income while slowly accumulating long-term positions in companies you actually want to own. And when implied volatility (IV) is elevated, the strategy becomes even more attractive.

Below is a chart plotting IV Rank vs. Implied Volatility (IV) for a group of dividend-paying stocks. These are names that not only pay solid yields—but currently offer elevated options premiums due to market volatility:

Stocks in the upper-right quadrant—names like PBR, STLA, CNQ, KEY, DOW, and BP—stand out as strong candidates for the Wheel Strategy. That said, several others (UPS, USB, MO, PFE) on the chart present solid opportunities as well, depending on your portfolio goals and risk tolerance. Why? Because they combine high IV with high IV Rank, meaning premiums are rich relative to historical levels, and you're getting paid well to take on calculated risk.

If you’re looking to combine premium income, discounted entry, and long-term yield, this strategy deserves serious consideration—especially in environments like today where volatility is handing us opportunities on a silver platter.

✨ What Is the Wheel Strategy?

The Wheel Strategy is a repeatable income approach that blends two foundational strategies in options trading:

• Cash-Secured Puts (CSPs)

• Covered Calls (CCs)

The beauty of the strategy lies in its simplicity. Here's the process:

1. Sell a cash-secured put on a stock you want to own at a lower price.

2. If assigned, you buy the stock at the strike price.

3. Sell a covered call against the shares you now own.

4. If the call is exercised, your shares are sold.

5. Repeat the process with the same or another stock.

It's a cycle of income generation with defined risk parameters. You let time decay do the heavy lifting, all while using probabilities and premium to your advantage.

📉 Step 1: Selling a Cash-Secured Put on DOW

Dow Inc. (DOW) is trading well below its highs and currently offers a generous dividend yield of 9.70%. As of now, the stock is priced around $28.88. Let's say you're comfortable owning it at $25 or less, a discount to its current price.

Let’s say you decide to sell the May 16, 2025 $25 put on DOW, with 32 days until expiration. In doing so, you collect approximately $0.54 per share, or $54 per contract (since each option contract represents 100 shares).

That’s a 2.2% return on your capital at risk over just 32 days—which annualizes to roughly 24.2% if repeated consistently over the next 12 months.

Again, that’s a 2.2% return on your capital at risk, assuming the put is cash-secured. Your breakeven on the position is now $24.46 ($25 strike minus $0.54 premium). That’s 15.3% lower than where the stock is currently trading.

Two outcomes from here:

• Scenario A: DOW stays above $25. Your puts expire worthless. You keep the $54 and repeat the process. If this happens eleven times a year, that’s a potential ~24% annualized return in premium alone. You can use the premium as income or apply it to reduce your cost basis if you're eventually assigned shares.

• Scenario B: DOW closes below $25. You are assigned 100 shares at $25 each. But you were paid to wait and enter at a price you already liked and were willing to own the shares.

📈 Step 2: Selling a Covered Call on Assigned Shares

Now that you own 100 shares of DOW at $25, you move to the second phase: sell a covered call (unless you wish to simply own shares of DOW and collect the 9.7% dividend). 

With DOW now trading for, say, $24.75. You choose the $28 call expiring in 35 days. It offers a premium of about $1.00 per share, or $100 per contract.

• Based on your cost basis of $24.46 that’s a 4.1% return on your shares in 35 days.

Two outcomes again:

• Scenario A: DOW stays below $28. You keep your shares and collect the $100 premium. You repeat the process next cycle. If done ten times a year, this generates a ~41.0% annual yield on your shares.

• Scenario B: DOW finishes above $28. Your shares are called away at $28, giving you a $3.54 capital gain per share ($28 - cost basis of $24.46) plus the $1.00 premium. That’s a total return of $4.54 per 100 shares, or 18.6% in 35 days.

Once the shares are sold, the Wheel resets. Rinse and repeat.

🔄 Why the Wheel Strategy Works

The Wheel thrives on consistency, not heroics.

• You're not timing the market.

• You're not chasing breakouts.

• You're not relying on forecasts.

Instead, you’re:

• Targeting stocks you want to own at a discount.

• Getting paid to wait for entry.

• Lowering your cost basis every time you sell premium.

Over time, the strategy compounds its edge. The premium collected from each leg reduces your cost basis and increases your margin of safety.

This approach is particularly useful in sideways or range-bound markets, where direction is uncertain but options premiums remain elevated.

💡 Risk Considerations

While the Wheel Strategy is considered conservative, it's not without risk:

• Assignment Risk: If the stock falls significantly below your put strike, you're still required to purchase it. You could be holding a falling asset.

• Opportunity Cost: If the stock surges above your call strike, you've capped your upside.

• Capital Efficiency: Cash-secured puts require a large amount of capital. It’s defined risk, but not capital-light.

📅 Timing and Volatility Matter

The best times to use the Wheel Strategy often coincide with spikes in implied volatility.

• Ahead of earnings (like DOW now)

• During market pullbacks

• In sector-specific stress (e.g., energy under pressure)

Why? Because options premiums expand with IV, giving you richer rewards for taking on defined risk. When volatility reverts back to the mean, you benefit from both time decay and IV contraction.

✅ Key Takeaways

• The Wheel Strategy is a structured, mechanical income approach.

• It blends cash-secured puts and covered calls to consistently generate premium.

• You only trade stocks you want to own, at prices you’re happy to pay.

• Elevated implied volatility (like in DOW now) enhances your edge.

• Over time, it offers a probabilistic way to lower cost basis, collect income, and improve return profiles.

If you want to integrate this strategy into your portfolio, start with liquid stocks under $75, where options are tight and assignment risk is manageable. Position size is key.

🌐 Continue Your Education

Want more breakdowns like this? Sign up for The Option Premium newsletter. Each week, I unpack high-probability strategies, walk through real-time trades, and help you become a more informed, confident options trader.

Got a ticker you want to see analyzed through the Wheel? Reach out—I might include it in a future article.

Stay patient. Stay disciplined. Sell premium.

Andy Crowder

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