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Which stocks should you not wheel? Four kinds, with the loss shown

The stocks to avoid for the wheel all have one thing in common: a premium that looks too good. Meme names, stocks facing a single make-or-break event, thin chains and falling knives. Here's the loss on one of them, worked out.

Options guide · 9-minute read · Updated 2026-10-26

The short answer

Avoid four kinds of stock for the wheel strategy: meme names that move on crowd mood, stocks with a single event that can halve them overnight, stocks whose options barely trade, and stocks in a long fall. Each one pays a big premium. The premium is big because the risk is big.

The wheel works when you're happy to own the stock for months. None of these four are stocks most people want to own for months.

1. Meme stocks

A meme stock moves on attention, not on the business. The premium is huge because Implied volatility is huge. Selling a put on one feels like easy money for a week, then the crowd moves on and the stock gives back half its value.

The problem isn't the fall. It's that nothing underneath holds the price up. There's no earnings floor, no dividend, no reason for buyers to return. Our scenario page I sold puts on a meme stock shows how it plays out.

2. Binary-event stocks

Some stocks live or die on one date: a drug trial result, a court ruling, a takeover vote. Before the date, the premium is enormous. After it, the stock can be up 60% or down 70%.

A put sold into that isn't a wheel trade. It's a bet on the result, and the premium is the market's fair price for the bet. You don't have an edge in that bet. Earnings are a smaller version of the same thing; see checking the earnings date before you sell.

3. Thin option chains

If a put's Open interest is 12 contracts and the bid-ask gap is $0.40 wide on a $1.00 option, you'll give up a big slice of the premium just getting in and out. Worse, when you need to close in a hurry, there may be no buyer at any fair price.

The rule of thumb many sellers use: open interest in the hundreds and a spread of a few cents, or no trade. The thresholds are in how to check an option's liquidity.

4. Falling knives

A stock that has dropped from $80 to $50 over six months looks cheap and pays a fat premium. People sell puts "at a discount." Then it goes to $30.

Cheap is not the same as done falling. A stock in a long slide is usually sliding for a reason: shrinking sales, debt, a broken product. The quality checks catch many of these. The chart catches the rest: if the stock is making new lows every month, the last place price turned around is far above you.

The worked example: a falling knife (an illustration, not a trade idea)

A made-up stock, XYZ, has fallen from $80 to $50 over six months. Sales are shrinking. The 30-day $45 put pays $2.50, far more than the $0.60 a steady stock would pay. You sell it, thinking "$45 is a bargain after an $80 high." You collect $250. Cash set aside: $4,500.

Month 1. XYZ falls to $36. You're assigned at $45. Shares worth $3,600.

Month 2. You sell a $40 call for $0.60, hoping to be called away near your cost. XYZ falls to $30. The call expires. You still own the shares.

Month 3. A $40 call now pays pennies, so you sell a $33 call for $0.50 just to collect something. XYZ bounces to $36 and you're called away at $33.

Three months, every step "by the book," and you lost $840 on $4,500 set aside. The premiums covered $360 of a $1,200 share loss. And if you'd never sold the $33 call, you'd still be holding a stock at $36 that cost you $45.

Compare it with the steady stock paying $0.60. Its premium was a quarter of the size. It also wasn't falling.

The checklist that keeps these off your list

Before a name goes on, every line must be yes:

1. Profitable, with debt the business can carry. (Quality checks)
2. No earnings or known event inside the expiry.
3. Open interest in the hundreds; spread of a few cents.
4. Not making new lows month after month.
5. The premium is in line with the rest of the list, not double it.
6. You'd hold 100 shares for a year if you had to.

If a stock fails one line, the premium doesn't matter. Our page on screening stocks for the wheel turns this into a step-by-step routine.

What to do next

1. Take your current watchlist. Rank each name by its 30-day put premium as a share of the strike.
2. Look hard at the top two. Why do they pay more? If the answer is an event, a slide or a crowd, cross them off.
3. For each of the rest, check open interest and the spread at your strike.
4. Rebuild the list with only the names that pass all six lines above.

Questions