HL Financial Strategies 101: Capital Requirements & Realistic Expectations
Part 4 of the beginner series
Hello everyone! For those of you in the U.S., happy President’s Day! Hopefully everyone is enjoying the day as the U.S. stock market is closed. These are good days to take a breather, catch up on whatever you need to do, prepare for the trading week — and even post a blog update :)
Up to this point in the series, we’ve covered:
What stocks and options actually are
The difference between buying and selling options
How the Wheel Strategy works step by step
Dove into some examples
Now here’s the other important part of the strategy — and what most people always ask:
How much capital this actually requires.
And what kind of returns are realistic.
Because this is where expectations either become grounded… or dangerous.
The First Reality: The Wheel Is Capital Intensive
I won’t sugar coat this for everyone, but put simply — the Wheel Strategy is built on selling cash-secured puts. And that means you must have enough capital to buy 100 shares of the stock if you are assigned.
So yes — it is capital intensive.
If a stock trades at $100 per share, one contract requires:
$100 × 100 shares = $10,000
That capital is reserved while the put is open. This is why smaller accounts often struggle with the Wheel.
You don’t need hundreds of thousands of dollars to start — but you do need enough to:
Run at least one full cycle
Avoid concentrating your entire account in a single position
Withstand normal market volatility
What Happens With Smaller Accounts
If you’re working with $5,000–$10,000:
You’re limited to lower-priced stocks (and this becomes important)
Diversification becomes difficult
One assignment can tie up most of your capital
Premium collected may feel small relative to effort
This is where many beginners get tempted.
Lower-priced stocks often come with higher volatility. And higher volatility often comes with higher premium.
That sounds attractive — but higher premium exists for a reason.
It reflects higher risk.
A stock that moves 8–10% in a week can just as easily move 20–30% in a month. If you’re assigned on something unstable, you may find yourself holding shares you never truly wanted to own.
The Wheel only works as intended when you’re comfortable owning the stock.
This doesn’t mean smaller accounts can’t do it — it just means stock selection becomes even more important.
The Wheel scales beautifully with capital. It’s slower and more constrained at the beginning. And that’s normal.
The Second Reality: Premium Is Income, Not a Jackpot
When people first see options premium, they often focus on the dollar amount.
But what matters is percentage return relative to capital at risk.
For example:
$250 premium on $10,000 reserved capital
= 2.5% for that cycle
That’s actually really good returns! It’s attractive. A good rule of thumb is to earn 1–3% of your capital per month.
But here’s the key:
You won’t collect 2–3% on a single position every week — sometimes not even every month.
You can’t and won’t avoid assignments forever. Even the best stocks eventually get tested. Markets won’t always cooperate.
Premium fluctuates with:
Volatility
Time to expiration
Stock movement
Overall market conditions
Consistency matters more than peak premium.
Why Chasing High Premium Is Dangerous
One of the biggest mistakes beginners make is chasing high implied volatility stocks simply because the premium looks better.
You might see:
4–5% potential monthly premium
Weekly contracts paying “easy money”
Fast-moving names that look exciting
But volatility cuts both ways.
The same volatility that inflates premium also increases:
Assignment frequency
Deeper drawdowns
Emotional stress
Opportunity cost if capital gets stuck
The goal is not to maximize premium.
The goal is to maximize durability.
A slightly lower premium on a stable, established company is often far more sustainable than a higher premium on something that can drop 30% on a headline. This also helps reduce stress and sleep better at night, and that peace of mind is worth more than a jackpot play.
The Wheel rewards discipline more than aggression.
So What Is a Realistic Return?
This is where discipline becomes important.
For most investors, running the Wheel conservatively:
1–3% per month on deployed capital is a realistic target range
Some months will be higher
Some months will be lower
Some months may be flat
That doesn’t mean guaranteed. It just means achievable with structure and patience.
The mistake people make in the beginning is chasing:
5-10% per week/month
Ultra short expirations
High volatility stocks they wouldn’t actually want to own
Is this possible? Absolutely. But I think that goes against the main principal, and that’s no longer a conservative Wheel strategy.
A Simple Example
Let’s walk through a simplified annual scenario.
Assume:
$20,000 deployed capital
Average 2% monthly return on deployed capital
Some months flat, some higher
Over 12 months:
2% × 12 months = ~24% gross on deployed capital (before taxes and adjustments)
Again, that’s not guaranteed. It won’t be perfectly linear. There will be assignments and slower cycles.
But over a long period of time, consistency compounds. And that’s the edge. 24% annual return generally beats the average return of 7-8%.
The Mental Shift
The Wheel works best when you think in terms of:
Annual consistency
Risk-adjusted income
Probability over prediction
Not:
Daily excitement
Maximizing upside
Perfect timing
The more boring it feels, the more likely you’re doing it correctly.
Is This Right for You?
A general check-list to see if this works for you:
Have sufficient capital
Prefer structure over speculation
Are comfortable owning stocks
Value consistency over adrenaline
Can accept slower cycles
The Wheel may be a strong fit.
If you:
Want maximum upside
Have very limited capital
Aren’t looking for share ownership during downturns
It may not be the right approach — and that’s okay. No strategy fits everyone. Again, the Wheel isn’t a “quick flip” system.
There’s a lot of great traders who can absolutely help grow small accounts with great strategies, but those never worked and resonated with me.
But, if you’re building long-term capital and want structured income layered on top — it can fit very well.
What’s Next
Now that we’ve covered who it can work great for and what is a good capital requirement for the Wheel Strategy, in the next post, we’ll dive into the other big important part of this:
What can go wrong. And believe me, things can even with the most sound strategies, and I’m currently experiencing this in today’s market conditions a bit. What to do when:
Assignments happen during sharp downturns
Rolling too often and aggressively
And tackling one important myth: that the Wheel is “low risk”
I think understanding the risks is even more important than understanding the rewards because it is what makes the income durable. If you actually spend more time avoiding the risks, the rewards tend to follow.
Happy trading everyone!
-HL Financial Strategies