HL Financial Strategies 101: Stocks, Options, and the intro to the Wheel Strategy
The beginning of the basic series
Welcome to the beginner series, where I talk stocks, market, and trading, bringing back all the way to the basics! For some this might be too basic, and others this might be a good refresher, but either way, it’s something I’ve always wanted to start and thought this is to be the perfect time, and hope this is found to be helpful!
Before we talk about strategies, trades, or returns, we need to at step one: Stocks!
This might feel obvious — but a lot of confusion around options comes from never fully understanding what a stock actually represents. If that foundation is shaky, everything built on top of it will feel more complicated than it needs to be.
What a Stock Really Is
When you buy a stock, you’re buying ownership in a company.
That ownership comes with two simple realities:
the value of your shares can go up or down
the company may (or may not) generate cash for you through growth, dividends, or buybacks
When someone says they’re bullish on a stock, what they’re really saying is:
“I believe this company will be worth more in the future than it is today.”
That belief is what drives stock prices over time.
The Limitations of Only Owning Stocks
Owning stocks works well over the long term. Everyone should own stocks! Historically, the annual return on stocks over time is 8%, so of course it is highly recommended to invest in the market, and stay invested! With that said, it does have constraints:
You only make money if price goes up
Flat markets feel unproductive, volatile markets feel scary
You tie up all of your capital into the stock and market, so even if you’ve made money, it’s not realized until you sell, which you don’t want to do!
Ownership of a great company is great, but ownership alone doesn’t give you flexibility. And that’s where options come in.
What Options Actually Are (In Simple Terms)
Options exist because stocks exist.
An option is a contract tied to a specific stock. It answers one of two questions:
At what price can I buy this stock?
At what price can I sell this stock?
And it answers that question for a limited period of time.
Options don’t float around independently. Every option is tied to an underlying stock and expires on a set date.
The Two Types of Options
There are only two basic types:
Call Options
A call option gives the right to buy a stock at a specific price (called the strike price) before a certain date.
Calls are about upside.
Put Options
A put option gives the right to sell a stock at a specific price before a certain date.
Puts are about downside protection or downside bets.
Every option is one of these two.
Buying Options: Direction and Timing
Most people are introduced to options by buying them.
When you buy an option:
you pay money upfront
you need the stock to move in the right direction
and you need it to move in time
If the stock doesn’t move enough — even if your long-term view is right — the option can lose value or expire worthless.
This is why buying options often feels frustrating for beginners:
you can be “right” and still lose money
time is always working against you
Buying options isn’t wrong. It’s just hard to do consistently.
Those that do it, hats off to them. You can absolutely be successful buying options, and the risk-reward ratio might be more comfortable for them. Do what brings you success. I just wasn’t doing good at it myself, so I had to find a strategy that worked for me.
Selling Options: The Side Most People Don’t Know About
When you sell an option, you’re on the other side of the contract.
Instead of paying upfront, you:
collect premium immediately
benefit from time passing
and don’t need a dramatic move to be right
Selling options shifts the focus from prediction to probability.
Rather than needing something to happen, you’re getting paid for what doesn’t happen.
This is the side of options that I’ve talked about here, and I focus on almost exclusively. It’s the foundation of the Wheel Strategy, and after I discovered this side, it’s hard to go back!
How Selling Options Connects Back to Stocks
Here’s the mental shift that has helped me be successful and how buying stocks and trading options really go hand-in-hand:
Selling options isn’t separate from owning stocks — it’s an extension of it.
Selling puts is a way to get paid while waiting to buy a stock
Selling calls is a way to get paid while holding a stock
This combines fundamentals with structure and income! This also removes the prediction out of it, since you now (in a way) mentally don’t care which direction the market goes.
Why This Foundation Matters
Options aren’t inherently risky or complicated. They’re just tools. Used carelessly, they magnify mistakes. Used deliberately, they create flexibility and income.
Before we talk about strategies, capital, or returns, this distinction matters more than anything else:
buying options means paying for possibility
selling options means getting paid for probability
From here, we build on the foundation was come to be known as the Wheel Strategy.
What’s Next
In the next post, I’ll walk through how these pieces come together in the Wheel Strategy. Again, this concept isn’t new, but it’s one that is not often used! The strategy consists of:
selling puts
owning shares
selling calls
and repeating the process with intention
Until the next post! Cheers.
-HL Financial Strategies