HL Financial Strategies 101: How to Pick the Right Stocks for the Wheel
Part 7 of our Beginner Series
Hey everyone and welcome back! Last time we talked about position sizing and portfolio construction — how to structure your capital so that no single trade can blow up your account. If you missed it, definitely go back and check that one out first, because today’s post builds on it. Given today’s conditions, I think that is more important than ever! (What a week)
Now we get to the question I teased at the end of Part 6 — the one that’s always on everyone’s mind:
Which stocks do I pick?
Everyone wants to know the next hot thing. I get this question every time I tell someone I’m into trading stocks and options. “Oh, what stock should I pick?” Everyone wants the moonshot. The stock that’s going to 10x. But here’s the truth: the Wheel Strategy isn’t about finding the next big winner. It’s about finding stocks that can systematically generate consistent income — over and over again.
Not every stock is built for that. In fact, some of the most exciting, high-flying stocks out there are some of the worst candidates for the Wheel. Let’s break down exactly what to look for.
What Makes a Stock “Wheel-Friendly”?
When I’m evaluating a stock for the Wheel, I’m not asking “will this go up?” I’m asking “would I be comfortable owning 100 shares of this if I got assigned?”
That’s the mindset shift. Because with a cash-secured put, assignment is always a possibility. So the stock needs to be one you’d genuinely be okay holding — not one you’re praying doesn’t drop.
Here’s what I look for:
1. A stock you actually believe in
This might sound obvious, but it’s the foundation. If a stock dropped 20% tomorrow and you got assigned, would you be okay holding it and selling covered calls while you wait for recovery? If the answer is no, it’s probably not a Wheel candidate for you.
I personally stick to companies with strong fundamentals, brand recognition, and staying power. Think large-cap names — not speculative small caps.
2. A reasonable share price
Remember, one contract = 100 shares. A $500 stock ties up $50,000 per contract. A $50 stock ties up $5,000. For most people starting out, lower share prices make it easier to stay within your 25% per position rule from Part 6.
This is why stocks in the $20–$150 range are often the sweet spot for smaller accounts.
3. Consistent options volume and open interest
This one is huge and often overlooked by beginners.
You need stocks with liquid options markets — meaning there are plenty of buyers and sellers at any given time. If a stock has low options volume, you’ll face wide bid-ask spreads, which quietly eat into your premium. You want tight spreads and easy fills.
A simple way to check: pull up the options chain and look at the open interest on the strikes you’d target. Thousands of contracts open? Good. Single digits? Move on.
4. Moderate — not extreme — implied volatility (IV)
Higher IV = higher premium. That sounds great, right?
Not always. Stocks with extremely high IV are usually priced that way for a reason — the market is pricing in significant uncertainty. These stocks can make for exciting premium collection, but they’re also more likely to make violent moves against you.
For the Wheel, you want elevated but not extreme IV. Enough to collect meaningful premium, but not so wild that one bad week wipes out months of gains.
Stocks to Avoid
Just as important as knowing what to look for is knowing what to avoid. A few categories I personally stay away from for the Wheel:
🚫 Extremely volatile or speculative stocks
Stocks with no earnings, meme stocks, or anything that regularly moves 10–20% in a single day. Yes, the premiums look incredible. But so does the risk. One assignment on a stock like this and you could be holding a bag that takes years to recover — if it ever does.
🚫 Stocks ahead of major binary events
Earnings, FDA decisions, major product launches — these create massive overnight swings. If you’re holding an open position into one of these events, you’re essentially gambling. I personally try and avoid opening new Wheel positions within a few weeks of a known major catalyst.
🚫 Low-volume, illiquid names
If you can’t get a clean fill when opening or closing a position, you’re fighting the market every step of the way. Stick to names with active options markets.
Building Your Watch List
Once you understand the criteria, the goal is to build a short, focused watch list of 8–15 stocks you know well and would be comfortable owning. You’re not looking for 100 options — you’re looking for a reliable roster you can rotate through consistently.
Some things that can help build and refine your list:
Start with companies you already use, know, and follow. Think names of products you’re already using today, like your iPhone!
Look at large-cap S&P 500 names with active options markets
Filter by IV rank to find stocks with currently elevated premium
Track how each stock behaves — does it tend to stay range bound or trend hard?
Over time, you’ll develop a feel for which names work best for you based on your account size, risk tolerance, and trading style.
The Bottom Line
Picking stocks for the Wheel isn’t about being right on direction. It’s about finding companies you’re comfortable owning, with liquid options markets, at prices that fit your account — and then running the strategy consistently over time.
The “boring” names? Often the best ones. Consistent premium. Predictable behavior. And something you can actually sleep at night holding.
That’s the game.
What’s Next
Now that we know which stocks to target, the next logical question is: where exactly do I set my strike price and expiration?
In Part 8, we’ll get into how to read an options chain, pick your strike, and choose your expiration date — so you can start putting all of this into practice.
Stay tuned, and as always — happy trading! 😊
– HL Financial Strategies