Wheel Strategy Example: One Full Cycle, Trade by Trade
Most explanations of the Wheel stop at a diagram. This page follows one hypothetical position through a complete cycle: two cash-secured puts, an assignment, two covered calls, and the shares getting called away. Every dollar is tracked, so you can see where the money comes from, what the cost basis does, and how the result compares with simply buying the stock.
All numbers below are hypothetical round numbers chosen to make the math easy to follow. They are not quotes, live prices, or typical results.
The setup
XYZ is a made-up stock trading at $52. You would be comfortable owning 100 shares at $50, the options are liquid, and there is no earnings report in the next month. One put contract at a $50 strike needs $5,000 of cash set aside (strike × 100). Fees are assumed at $0.65 per contract and are added up at the end.
Trade 1: sell a put, it expires
Day 0. XYZ $52. Sell one $50 put, 30 days to expiration, for $1.10. You receive $110.
Day 30. XYZ closes at $53. The put expires worthless. You keep the $110 and the $5,000 is free again.
Return on the cash secured: $110 ÷ $5,000 = 2.2% in 30 days.
Trade 2: sell another put, get assigned
Day 30. XYZ $52.50. Sell another $50 put, 30 days, for $1.00. You receive $100.
Day 60. XYZ closes at $47. The put is in the money, so you are assigned: you buy 100 shares at $50 for $5,000.
Cost basis: $50.00 strike − $2.10 of put premium collected so far = $47.90 per share.
Where you stand: shares worth $4,700 + $210 premium − $5,000 paid = −$90 on paper.
This is the moment that tests whether the stock was a good choice. Assignment is not a failure in the Wheel; it is the second half of the plan. What happens next depends on whether you are happy holding XYZ at $47.
Trade 3: sell a covered call, it expires
Day 60. XYZ $47. Sell one $50 call, 30 days, for $0.60. You receive $60. The $50 strike sits above your $47.90 basis, so being called away would lock in a profit.
Day 90. XYZ closes at $48.80. The call expires worthless. You keep the $60 and the shares.
Cost basis: $47.90 − $0.60 = $47.30.
Trade 4: sell another covered call, shares are called away
Day 90. XYZ $48.80. Sell one $50 call, 30 days, for $0.85. You receive $85.
Day 120. XYZ closes at $51.40. The call is in the money and the shares are called away at $50. You receive $5,000 and are back to cash, ready to start again.
The full ledger
| Trade | What happened | Premium | Basis after |
|---|---|---|---|
| 1. $50 put | Expired | $110 | n/a (no shares) |
| 2. $50 put | Assigned at $50 | $100 | $47.90 |
| 3. $50 call | Expired | $60 | $47.30 |
| 4. $50 call | Called away at $50 | $85 | closed |
| Total premium | $355 | ||
- Premium collected: $355
- Stock profit or loss: bought at $50, sold at $50 = $0
- Fees: 4 contracts × $0.65 = $2.60
- Net result: $355 − $2.60 = $352.40 on $5,000, or about 7.0% over 120 days
- Simple annualized: 7.05% × 365 ÷ 120 ≈ 21.4%. Treat that as a description of this one path, not a forecast.
For comparison, someone who bought 100 shares at $52 on day 0 would be holding stock worth $51.40 on day 120: −$60. In this path the Wheel did much better, because the stock went sideways with one dip, which is close to the best case for selling options.
The same cycle on two other paths
The first two trades are identical. Only what XYZ does after assignment changes.
| Path after day 60 | Wheel result | Buy-and-hold from $52 |
|---|---|---|
| Sideways (above): ends near $51 | +$352 (called away at $50) | −$60 |
| Rally: XYZ $60 on day 90, trade 3 call assigned at $50 | +$270 premium, $0 stock = +$270 | +$800 |
| Slide: XYZ $41 on day 90, still holding | $4,100 + $270 − $5,000 = −$630 on paper | −$1,100 |
The rally path shows the cap: once you sell a $50 call, gains above $50 belong to the call buyer. The slide path shows the real risk: the premium cushioned the loss by $2.70 a share, but you still own a stock that fell 18% from your strike. At $41 a $50 call pays very little, and selling a call far below your $47.30 basis would lock in a loss if it were assigned. The choices there (wait, sell a lower call knowingly, or exit) are covered in Wheel Puzzle #7: The thesis broke and rolling options in the Wheel.
What this example teaches
- Track basis from the first put. The put premium you collected before assignment lowers your basis. Without it, trade 3 might have looked like a breakeven call instead of a profitable one. The Wheel cost basis calculator does this automatically.
- Measure the whole cycle, not one trade. Trade 1 alone showed 2.2% a month. The full cycle averaged about 1.8% a month in a favorable path, and would have been negative in the slide path. See what realistic Wheel returns look like.
- Strike choice sets the outcomes. Selling the calls at $50 meant any assignment was profitable. A lower call would have paid more and capped the result below basis. How to pick strikes and delta goes through this choice.
- The stock matters more than the premium. The difference between the best and worst path ($352 vs −$630) is far larger than any premium in the ledger. Start with stock selection.
To try your own numbers, enter a strike, premium and days in the free Wheel calculator, then log each leg in the free Wheel trade tracker. For the step-by-step mechanics behind each leg, see how the Wheel works. The full system, including how to choose stocks and manage assignments, is in Spin the Wheel, Cash the Checks (Kindle eBook).
FAQ
What is a simple example of the Wheel strategy?
Sell a cash-secured put at a strike you would be happy to pay. If it expires, keep the premium and sell another. If you are assigned, you own 100 shares and sell covered calls above your cost basis until the shares are called away, then start over with a put.
How much money do I need for a Wheel example like this?
One contract covers 100 shares, so the cash needed is about the strike times 100. A $50 strike needs about $5,000, before the premium you receive. Lower-priced stocks need less; see the small-account guide.
Is the Wheel profitable in every scenario?
No. It does best when the stock moves sideways or rises slowly. In a strong rally you are capped at the call strike, and in a steep decline you hold shares that lost value, cushioned only by the premiums collected.
How do I calculate my cost basis after assignment?
Start with the put strike and subtract every option premium you have collected on that position, per share. In the example, a $50 strike minus $2.10 of put premium gives a $47.90 basis, and each covered call lowers it further.
Educational only, not financial advice. Options involve risk.