HL Financial Strategies 101: The Wheel Strategy, Step by Step
Part 3 of the Beginner Series
Hello all! With all of the market swings in the past week or so, I was debating if I should pause this, but then I realized, this is the perfect time to lay out this strategy!
In the last post, we covered about an important distinction in options trading:
Buying options vs. selling options.
Buying options requires direction and timing. Selling options gets paid for probability and time.
Enter, the Wheel Strategy, which lives entirely on the selling side, and the side I live entirely on for my income generation.
In this post I’ll cover how those pieces come together in practice, and how it should be a repeatable process.
The Big Picture
At its core, the Wheel Strategy is simple:
Sell puts to get paid while waiting to buy a stock
If assigned, own the stock at a price you already accepted
Sell calls to generate income on those shares
Repeat the cycle
That’s really it. The complexity comes from execution, not the structure. There’s other rules to follow here, but I’ll get into that later. We’ll break down the structure first, then strategy later.
Step 1: Selling the Put
Everything starts with a stock you’re comfortable owning. Not a speculative ticker you hope pops. Or something you’d panic-hold. A company you’re genuinely okay owning at a lower price.
Instead of buying shares outright, you sell a put at a strike price where you’d be willing to buy.
What this does:
You collect premium upfront
You define your entry price
You get paid whether the stock drops or not
If the stock stays above the strike → the option expires, you keep the premium.
If the stock drops below the strike → you buy the shares at the agreed price.
Either outcome is acceptable by design.
A Real-World Example (Put Side)
Here’s a simplified version of how this looks.
Let’s identify a stock I’d be comfortable owning and sell a put below the current price. AAPL ( AAPL 0.00%↑ ) is a great example! As of today, it is around $273. I want to own this stock at $250. I select my strike, expiration, and then sell, and execute. The premium is collected, and then that’s it.
I’m not trying to nail the bottom. Again, it’s just a strike price I’m willing to own it at, and I’m trying to get paid while I wait.
If the stock doesn’t drop:
I keep the premium
capital is freed
I move on or repeat
If it does drop:
I’m assigned shares
my effective cost basis is reduced by the premium
I move to the next step
This removes urgency (key point here as options are generally tied to time). There’s no rush, and no chase.
Step 2: Assignment Isn’t Failure
I think this is the part that trips people up emotionally.
Assignment feels like “losing” — but within the Wheel, assignment is just a transition.
You now own shares:
at a price you already accepted
with premium already collected
with a plan for what comes next
Nothing broke. The strategy is still intact.
This is why stock selection matters so much. Quality names that can withstand bad earnings, conditions, sentiment, etc., and look to recover. In my example of AAPL, dropping to $250 is likely and it can continue to fall further. You then proceed to step 3.
Step 3: Selling the Covered Call
Once I own the shares, I sell a covered call against them.
This does two things:
generates additional income
defines a potential exit price
If the stock stays below the call strike:
the call expires
I keep the premium
I can sell another call
If the stock rises above the strike:
shares get called away
I exit at a predefined price
total profit includes all premiums collected
Again, no surprises.
A Real-World Example (Call Side)
In practice, this often looks like:
selling calls above my cost basis
prioritizing consistency over max upside
being okay with shares getting called away
If shares are called:
capital is freed
profits are realized
the wheel resets
There’s no attachment to the position. That’s intentional. The shares are just another way of using the capital to make money.
In the case of AAPL, the strike I choose would likely be at or a bit above $250, and then once again, the waiting game commences.
What the Wheel Is — and Isn’t
That is essentially the basics of the Wheel! It is:
an income framework
a probability-based approach
a way to remove emotion from entries and exits
It is not:
a way to maximize upside (this is the biggest psychological barrier I believe most people must overcome)
a guarantee of profits
something to run on stocks you don’t want to own
It works best when you accept those tradeoffs upfront.
Why This Appeals to Me
Honestly, this isn’t the most exciting or sexy trading strategy. But that’s exactly why it appeals to me. I was never one to analyze the charts, see patterns, and able to scalp or successfully identify good trades. But I do know pricing, identifying good companies, and I have an interest in the markets! This is perfect for me, and why I use this strategy.
It’s SIMPLE
It’s repeatable
It scales with capital
It aligns with how I want to manage risk
And it performs in flat or choppy markets
What’s Next
I think in the next post, I’ll go deeper into the practical considerations:
How much capital this actually requires
Realistic return expectations
Common beginner mistakes
Why small accounts might struggle with this approach
The Wheel isn’t for everyone, and the goal isn’t to convince anyone to run the Wheel exclusively here, but it’s to give you enough clarity to decide whether it fits you or not.
Until next time!
-HL Financial Strategies