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The wheel underperformed just holding the stock. Why, and is that normal?

Yes, that's normal. In a year when the stock rises hard, the wheel caps your gains over and over, and plain holding keeps them all. Here's a year in numbers so you can see exactly where the gap came from.

Options guide · 8-minute read · Updated 2026-10-26

The short answer

The wheel sells the big move. Every covered call caps your upside at the strike. Every put sold instead of buying shares means you're not holding the stock while it climbs. In a bull year, those two habits cost more than the premiums bring in.

That isn't a bug in the wheel strategy. It's the trade: a premium now, in exchange for giving up the part of the rise above the strike. In a flat or choppy year the premiums look great. In a strong year they look small.

A bull year, in numbers (an illustration, not a trade idea)

A made-up stock, XYZ, starts the year at $50 and ends it at $75. Two accounts, $5,000 each.

Account A buys 100 shares at $50 and does nothing. End of year: 100 shares worth $7,500, up $2,500.

Account B runs the wheel, one contract at a time, 30-day options, round numbers.

Q3 needs a closer look, because it's where the wheel catches up a little and then gets capped again. B was assigned at $64, collected $100 on the put, then sold a $68 call for another $100. At quarter end the stock was $66: shares up $200, premiums $200, so Q3 ends +$400, not a loss. The call expired, and B kept the shares into Q4.

Year total for B: $600 + $100 + $400 + $500 = +$1,600.

Nine hundred dollars behind, on a $5,000 stake, while being "right" on every single trade. Every option B sold expired or was assigned the way the plan intended. B still trailed by a wide margin.

Where the gap came from

Trace it back and three things did the damage:

1. Q1's cap. XYZ went to $62; B was stopped at $55. That's $700 of rise handed to the call buyer for a $100 premium.
2. Q2's missed shares. After being called away, B sold a put at $58 instead of buying back in. The stock rose to $68 while B sat in cash. B only got shares again in Q3, at $64: $200 above where Q1 ended.
3. Q4's cap again. $75 versus $70. Another $500 of rise given up for $100.

The premiums added $500 for the year. The caps and the time out of the stock cost $1,400 ($700 + $200 + $500). Net: −$900.

When the wheel wins, and when it doesn't

Read the last row too. The wheel doesn't protect you in a bad year either; the premiums are a thin cushion. So the honest picture is: the wheel does best in the boring middle, and trails at both extremes.

The honest trade-off

You're choosing a narrower range of results. Fewer huge years, slightly softer bad years, more ordinary ones. Some people want that. Someone who checks the account once a month and likes knowing the plan for every outcome will like it.

Someone who bought the stock because they expect it to double should not wheel it. For that stock, the cap is the single most expensive thing you can add. See I sold calls on shares I didn't want to lose for that mistake worked through.

The other quiet cost: B placed five option trades, logged each one, and watched each expiry. A did nothing. Time is part of the price.

What to do with this

• Don't switch strategies after one bull year. That's chasing last year's winner, which is how people end up holding through the next bear year with no plan. Judge the wheel over several years and several kinds of markets.
• Pick which stocks you wheel. Steady, range-bound businesses suit it. A stock you expect to run doesn't. You can hold one and wheel the other.
• Sell calls further out when the trend is strong. A higher strike keeps more of the rise for a smaller premium. It doesn't remove the cap, but it moves it.
• Count the full year. Compare the wheel to holding the same stock, in dollars, in your journal. The premiums feel good month by month; the comparison tells the truth. I counted premium as profit too early explains that trap.

A Canadian note: in a TFSA the comparison is simpler because neither account pays tax on the gains, but in a regular account each called-away sale is a taxable event, while plain holding isn't until you sell.

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