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The wheel or an index fund: which one fits you?

An index fund owns hundreds of companies and needs almost no time. The wheel usually rides on a few stocks and needs a decision every month. In a year when your stock falls and the market rises, that difference shows up in dollars.

Options guide · 9-minute read · Updated 2026-10-27

The short answer

An index fund buys a slice of a whole market, often hundreds of companies, and holds it. You make almost no decisions, you keep the market's full rise, and you take its full fall.

The wheel strategy sells puts and covered calls, usually on a handful of stocks. It collects premium every cycle, caps your upside, and carries the risk of the few companies you picked.

The wheel can do better in flat or choppy stretches. It can do much worse when the market rises and your stock doesn't. For many people, the honest answer is that an index fund is the better fit. The rest of this page helps you tell which group you're in.

A year where the wheel loses (an illustration, not a trade idea)

Two people each start with $10,000. All numbers are made up.

Person A buys an index fund at $100 a share and does nothing else.

Person B runs the wheel on one made-up stock, XYZ, trading at $50. They sell two 30-day $45 puts for $1.00 each, collecting $200, with $9,000 set aside.

Month 1. XYZ gives a weak outlook and drops to $40. Both puts are assigned. Person B now owns 200 shares at $45. Cost per share: $44.

Months 2 to 12. Person B sells covered calls at the $45 strike so they won't sell below cost. With XYZ well below $45, the calls pay about $0.20 each. They sell two every month except the one with an earnings report, so ten months × 2 × $20 = $400. XYZ never recovers and ends the year at $38.

Meanwhile, the market has a decent year. Person A's fund ends at $115.

This is the most common way the wheel underperforms: not a crash, but one stock lagging while the broad market moves on. See the wheel underperformed the stock for the opposite case, where the stock soars and the calls cap it.

Four kinds of year

The example was one year. Here's how each tends to handle others (still an illustration).

The wheel isn't a bad tool. It's a narrower one. It shines when prices go sideways and stings when your few stocks lag.

Time, taxes and concentration

Time. An index fund can take minutes a year. The wheel takes time every cycle: picking strikes, checking earnings, deciding to close, roll or accept assignment. See wheel strategy time commitment.

Taxes. This is general information, not tax advice; check with a tax professional or your broker. In a US taxable account, an index fund held over a year usually means long-term gains when you sell, plus taxes on its dividends. The wheel creates many short-term gains and losses, plus share sales after assignment. See taxes on selling options in the US. In an IRA, a TFSA or an RRSP, both can grow sheltered, though frequent trading in a TFSA can draw CRA's attention. In Canada, covered calls are widely allowed in a TFSA or RRSP, while cash-secured puts depend on the broker, and options permissions differ by broker.

Concentration. An index fund spreads one company's bad news across hundreds. A $10,000 wheel account usually holds one to three names, so one bad company can set the whole account back. See diversifying a wheel portfolio and can you wheel with a small account.

Who should just index

An index fund is likely the better fit if:

• You don't want to pick stocks. The wheel only works on stocks you'd truly want to own.
• You don't have time each month for decisions and checks.
• Your account is small, so one wheel position would be most of it.
• Assignment would stress you out. Owning a stock that's fallen 20% is part of the wheel.
• You mainly want long-term growth and don't mind riding out falls.

Who might wheel, or do both

The wheel can fit if you enjoy the work, have stocks you'd hold through a drop, and accept trading some upside for premium. Some people do both: an index fund as the core, and a smaller slice of the account for the wheel. That way, one stock's bad year hurts the slice, not the whole.

If you try it, compare yourself honestly. Once a year, put your wheel result next to what an index fund did over the same stretch. If the index keeps winning and you don't enjoy the work, that's useful to know. For a comparison with dividend-paying stocks, see the wheel vs dividend investing.

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