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Wheel strategy rules you write down before you trade

The wheel doesn't fail on the maths. It fails when a stock drops, the premium looks tempting, and you decide by feel. A written rule set makes those decisions before the stress arrives. Here's a complete one you can copy and change.

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

Why rules beat feel

Most bad wheel trades share one shape. The trader knew the rule. The stock dropped, the premium looked fat, or the roll looked free, and they made an exception. Rules written down before the trade don't bend when the chart does.

The wheel strategy has only a few decision points: the stock, the strike, the date, the size, and the exit. Each one needs a rule. Here's a full set. Change the numbers to fit you. Don't skip a line.

Rule 1: which stocks you'll wheel

• A business you'd be fine holding for a year if it fell 30%.
• Share price in a range where 100 shares fits your size cap (rule 4).
• Options with tight spreads and real Open interest at the strikes you'd use.
• No stock you've never looked at a chart of. No stock you found because of its premium.
• Written list, kept short. New names go on the list a week before they get a trade.

See best stocks for the wheel strategy for criteria and stocks to avoid for the wheel for the other list.

Rule 2: the strike

• Puts: a strike you'd be glad to pay. Below a recent place price turned around, or about 5% to 10% under today's price. Delta around 0.20 to 0.30 is a common guide, not a law.
• Calls: a strike above your Cost basis. Never below it, no matter the premium. See the strike below cost trap.
• If the only call above basis pays pennies, that's information. Sell it or wait. Don't drop the strike.

Rule 3: days to expiry

• Open at 30 to 45 days. Shorter decays faster but gives one bad day no room. Longer pays more but ties up the cash longer.
• Close early at a set point if you use one, for example when half the premium is gone. Or hold to expiry. Pick one and keep it.
• See 30 DTE vs 45 DTE for the trade-off in numbers.

Rule 4: the size cap

• One stock's assignment value is never more than a fixed share of the account. A common cap is 10% to 20%. Your number, written down.
• Count the strike times 100, not the premium. A $50 put is $5,000 of risk, not $100 of reward.
• Total cash set aside across all open puts never exceeds what you'd be fine owning in stock during a bad month.

See position sizing for selling options.

Rule 5: no earnings inside the trade

• Check the earnings date before every put and every call. If it falls before expiry, pick another date or another stock.
• Same for a known binary event: a drug ruling, a court date, a big product launch.
• The fat premium you see right before earnings is the price of that gap. See checking the earnings date before selling.

Rule 6: the exits

• If assigned and the stock keeps falling: a written price where you sell the shares and take the loss. Set it when you sell the put. Below the last place price turned around is a common choice.
• If the stock runs past your call strike: let it go. You chose that strike. Don't roll to chase it.
• Rolling: at most once per position, only for a Net credit, and never below basis. A second roll means the stock was wrong. See rolling options forever.

The rules against a bad turn (an illustration, not a trade idea)

Here's what the rules are worth. A made-up stock, XYZ, is at $60. Two traders sell the same 35-day $55 put for $1.20 and collect $120. XYZ gaps to $45 on bad news and both are assigned at $55. Basis: $53.80. Shares worth $4,500. Both are down $880 on day one.

Neither trader won. The rules trader lost $880 and had the cash back in a month. The feel trader lost $1,020, took three months, and sold a call below cost to do it. That's the whole case for writing it down.

What to do with this page

Copy the six rules into a note. Put your own numbers in. Read it before every order for a month. If a trade breaks a rule, you don't take it, even if you're sure. Especially if you're sure.

The first wheel trade checklist is the short version you tick before each order.

Questions