How To Generate Monthly Income Using Options Wheel Strategy

One way to generate consistent monthly income through collecting options premium is by using the famous Wheel Strategy.

First, you sell a cash secured put.

If the share price is above the strike price at the expiration date, you keep the entire premium.

If the share price is below the strike price at the expiration date, you keep the entire premium, and you will also be assigned 100 shares.

Once you are assigned with the 100 shares, you can start to sell covered call to collect premium as well.

If the share price is below the strike price at the expiration date, you keep the entire premium.

If the share price is above the strike price at the expiration date, you keep the entire premium, and your 100 shares will be called away.

Repeat the process of selling cash secured put again.

Since this process can be repeated, therefore it is called Wheel Strategy.

Recently I did the Wheel Strategy on Apple stock.

Note that you only do this on stock that will rise in the long term, as we are using only good fundamental stock.

Firstly, on 11 Feb 2021, I sold a cash secured put for premium of USD 248 for Apple stock.

I sold 1 contract.

The strike price is USD 126.

The put will expire on 26 March 2021.

On 26 March 2021, Apple share price was below USD 126 per share (strike price).

So option is in the money.

So I was assigned 100 Apple shares.

Note that the transaction was auto-completed on 27 March 2021 in Interactive Broker.

So 126 x 100 = USD 12,600 was deducted from my account in order to purchase the shares. 

As I do not plan to hold 100 Apple shares, I sold a covered call on Apple share on 29 March 2021.

I sold 1 contract.

I collected USD 117 premium.

The strike price is USD 127 per share.

The expiry is 16 April 2021.

On 16 April 2021, Apple share price starts to recover and it was above USD 127.

So the option is now in the money.

So the short call was assigned.

With that, the 100 Apple shares was called away.

So I collected 127 x 100 = USD 12,700.

Since I bought the 100 shares at USD 12,600, I profited USD 100 when I sold the Apple shares for USD 12,700.

For this Wheel Strategy, I earned the total profit of:

248+ 117 + 100 = USD 465.

The ROI = 469 / 12,600 = 3.69% for about 2 months.

If we can repeat this for 6 times: 6 x 3.69% = 22.14% per year.

Happy Investing! 😉