Options 101: The Wheel Strategy Explained Step by Step and Why You Should Focus on Stocks Below $100

Why the Wheel Works for Real Traders

Most beginners come to options chasing big wins with single calls or puts. It feels simple: risk a little, maybe make a lot. But reality is harsher, time decay and implied volatility crush long options.

The Wheel Strategy flips that narrative. It’s a structured way to collect income while building positions in stocks you actually want to own. Think of it as getting paid to be patient.

And here’s one of my personal rules: I prefer running the Wheel on stocks trading under $100. Why? Because capital efficiency matters. When you’re selling cash-secured puts or running covered calls, lower-priced stocks allow you to diversify across multiple names without tying up too much capital in a single position. For beginners, this makes the strategy accessible, and survivable.

Step 1: Sell Cash-Secured Puts

The Wheel starts with selling a put on a stock you’d like to own at a discount.

• Choose a liquid stock under $100

• Sell an out-of-the-money put. If the stock trades at $50, you might sell the $47 strike.

• You collect premium upfront, say $1.00, or $100 for one contract.

Two outcomes:

1. Stock stays above $47 → You keep the $100 and repeat.

2. Stock drops below $47 → You’re assigned shares at $47, but your true cost basis is $46 thanks to the premium.

Step 2: Move Into Covered Calls

Once assigned, it’s time for the next leg of the Wheel.

• You own 100 shares at $46.

• Sell an out-of-the-money call, maybe the $50 strike, for another $100.

Two outcomes:

1. Stock stays below $50 → You keep your shares and the premium.

2. Stock rises above $50 → Your shares are sold at $50, but your real sale price is $51 ($50 + $1 premium).

Step 3: Repeat (Spin the Wheel)

Shares get called away? Go back to Step 1 and sell puts again.
Shares remain? Keep selling calls.

That’s why it’s called “the Wheel”, because it keeps turning.

Why Focus on Stocks Under $100?

• Accessibility: Selling a put on a $90 stock requires $9,000 in capital, far less than $45,000 for a $450 stock.

• Diversification: With smaller capital blocks, you can run the Wheel on 5-10 different names, spreading risk.

• Flexibility: Lower-priced stocks let you size positions appropriately and stay disciplined.

• Psychological Comfort: It’s easier to manage assignment risk when you don’t have too much tied up in a single ticker.

For beginners, this keeps the strategy manageable. For veterans, it allows scaling across multiple trades.

A Real-World Example (Stock Under $100)

Stock: XYZ at $50

• Step 1: Sell the $47 put for $1 → $100 premium.

• Step 2: Assigned at $47, net cost = $46.

• Step 3: Sell the $50 call for $1 → another $100 premium.

• Step 4: Stock rises above $50, shares called away at $50 → Profit: $4 per share ($3 price gain + $1 premium) = 8.7% return on capital in one cycle.

Common Beginner Mistakes

1. Selling puts on speculative or illiquid stocks (stick to quality).

2. Getting greedy with strike selection (further OTM = safer).

3. Selling more puts than you can afford to cover (overleveraging kills).

4. Treating assignment as failure (it’s part of the plan).

Why the Wheel Belongs in Every Trader’s Toolkit

The Wheel isn’t about predicting where the market will go, it’s about being paid to wait. You profit if the stock goes up, sideways, or even drifts lower. Your only real risk is in sharp downturns, but even then, you’re left holding shares at a discount you already agreed to buy.

For Options 101 beginners, stocks under $100 make the strategy practical. For seasoned traders, the Wheel can become a core income engine.

👉 At The Option Premium, I show readers exactly how I apply the Wheel week after week, always with careful position sizing, disciplined strike selection, and a preference for stocks under $100. If you’re new, start small, follow the steps, and let the Wheel turn.

Probabilities over predictions,

Andy Crowder

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