How to Compare Wheel Premiums Honestly
The biggest dollar premium is often the worst use of cash. Here is a plain way to compare Wheel premiums — the same logic built into the free calculator.
Step 1 — Return on collateral (cash-secured put)
A cash-secured put ties up about strike × 100 in cash. Net premium is premium × 100 minus fees.
Put A: $50 strike, $1.00 premium, 30 days, ignore fees for a moment → $100 ÷ $5,000 = 2.0% for the cycle.
Put B: $100 strike, $1.50 premium, 45 days → $150 ÷ $10,000 = 1.5% for the cycle.
Put B looks “bigger.” Put A pays more on the cash that is locked.
Step 2 — Put both on the same clock
Annualized comparison ≈ cycle return × (365 ÷ days to expiration).
- Put A: 2.0% × 365 ÷ 30 ≈ 24.3%
- Put B: 1.5% × 365 ÷ 45 ≈ 12.2%
Those numbers assume perfect repeats with no assignment losses. Real markets do not work that way. Use them to rank trades, not to forecast income.
Step 3 — Breakeven if assigned
- Put A: $50.00 − $1.00 = $49.00
- Put B: $100.00 − $1.50 = $98.50
Only sell the put if you accept owning the shares near that price.
Step 4 — Treat a huge yield as a warning
Put C: $20 strike, $0.60 premium, 21 days → $60 ÷ $2,000 = 3.0% for the cycle ≈ 52% annualized. Premiums that rich usually price a known catalyst (earnings, biotech readout, distress). High implied volatility is the cost of risk, not free money.
Step 5 — Covered calls after assignment
If Put A assigns you at a $49 net basis, selling a call with a $47 strike can lock in a loss if shares are called away. Prefer call strikes at or above your net basis unless you have a deliberate exit plan.
Covered-call example: basis $49, sell $50 call for $0.70, 30 days, fee $0.65 → net premium $69.35 on $4,900 capital ≈ 1.42% for the cycle ≈ 17.2% annualized comparison.
Use the calculator instead of a napkin
Enter strike, premium, days to expiration, optional cost basis (calls), and fees at the Wheel Premium Calculator. It returns net premium, capital, breakeven or max if called, return on capital, and an annualized comparison.
Related reading: selling puts for income, cash-secured puts, covered calls.
FAQ
What is return on capital for a cash-secured put?
Divide net premium by the cash you set aside (strike × 100 per contract, adjusted for fees). It shows how much you earn on the money that is actually tied up for that cycle.
Why annualize option premiums?
So you can compare a 14-day trade with a 45-day trade on the same clock. Annualizing is a comparison tool, not a promise you will earn that rate for a year.
Does a higher annualized number mean a better trade?
Not by itself. Very high annualized premiums usually price in event risk or weak underlyings. Prefer names you want to own, then use the math to choose among acceptable strikes.
Can I use this with covered calls too?
Yes. For covered calls, many traders measure premium against share cost basis × 100. The free Wheel calculator supports both legs.
Educational only, not financial advice. Options involve risk.