Why the Wheel Strategy Stands Out as a Low-Risk Options Play

Options trading is often seen as a high-risk endeavor, where fortunes can be made or lost in the blink of an eye.

However, there is a strategy that offers a safer path—one that many traders swear by for its reliability and low-risk nature.

This strategy is known as the Wheel Strategy, and it’s particularly attractive for those who prefer steady returns over the rollercoaster of high-stakes options trading.

Quick disclaimer: This assumes the strategy is applied to high-quality stocks or Exchange-Traded Funds (ETFs) rather than those driven by hype.

Here are a few reasons why I believe the Wheel Strategy is one of the safest options out there.

1. Cash-Secured Puts and Covered Calls: No Liquidation Risk

One of the most compelling reasons why the Wheel Strategy is considered safe is that it primarily involves cash-secured puts and covered calls.

When you sell a cash-secured put, you’re essentially agreeing to buy a stock at a specific price, and you have enough cash in your account to do so.

This means you’re not using margin, and your account won’t be at risk of liquidation if the stock crash.

Similarly, when you sell a covered call, you’re selling the right to sell your stock at a predetermined price, but since you already own the stock, there’s no risk of margin call as well.

In both cases, your downside is limited to the cash or stock you already possess, making it a much safer bet than strategies that rely heavily on margin and leverage.

2. No Need to Worry About the Greeks

One of the most challenging aspects of options trading is managing the various “Greeks”—delta, gamma, theta, vega, and rho—that measure different sensitivities of an option’s price.

Many traders experience significant drawdowns because they fail to manage these complexities effectively.

An unexpected spike in implied volatility (IV) can wreak havoc on your portfolio, especially if you’re using strategies that are sensitive to IV and skew.

The Wheel Strategy, however, is refreshingly simple.

Since you’re primarily dealing with selling options, you’re not as exposed to sudden changes in volatility.

Instead of worrying about how a spike in IV might affect your positions, you can focus on managing your trades and rolling your positions when necessary.

Traders in various trading communities have experienced massive drawdowns due to IV spikes, but those using the Wheel Strategy have largely remained unscathed.

3. Buy Stocks Cheaper and Participate in Market Gains

One of the desirable outcomes of the Wheel Strategy is the ability to buy stocks at a discount.

When you sell a put option, you’re agreeing to buy the stock at a lower price than its current market value.

If the stock price drops to that level, you’ll end up owning the stock at a reduced cost thanks to the premium received.

If the stock doesn’t drop, you still pocket the premium from selling the put—either way, you win.

Once you own the stock, you can then sell covered calls against it.

If the stock price rises and your call option gets exercised, you’ll sell your stock at a higher price and capture the gains.

If the stock doesn’t rise, you keep the premium from the call option and still own the stock.

This cyclical process allows you to continuously generate income while participating in the market’s upward movements, all while limiting your risk.