The Wheel Strategy is one of the most popular options income strategies on the internet — and it's also one of the worst performing. Over any multi-year horizon in a normal market, a disciplined wheel trader will almost always underperform a simple buy-and-hold investor in the same stocks, often by 30% or more. This isn't an opinion about lazy traders who "execute the wheel wrong." It's a mathematical property of the strategy itself. And I'm going to show you the data.
I'm David Jaffee — Ivy League graduate, former Wall Street investment banker, and for over a decade a full-time options trader teaching 2,500+ students across 70+ countries. My two real trading accounts returned approximately +78% and +63% over the past 11–12 months (see the verified E*TRADE statements in my companion guide, Can You Make a Living Selling Options?). I do not use the Wheel Strategy. I have never used the Wheel Strategy as my primary approach. And in this article, I'm going to explain exactly why — and what I do instead that generates dramatically better returns.
Key Takeaways
- The Wheel Strategy structurally caps your upside while leaving 100% of your downside exposed — the worst possible risk/reward geometry in options trading
- Every major covered call ETF (JEPI, QYLD, NUSI, XYLD) has dramatically underperformed their benchmarks over any 3+ year horizon — real-world proof the underlying strategy is flawed
- The wheel "locks in losses" when traders sell covered calls at strikes below their cost basis after assignment — one of the most damaging mistakes in options trading
- The wheel is also 2.5–3x less capital efficient than simply selling cash-secured puts, because owning the stock consumes far more buying power than the short put alone
- Tastytrade, Options with Davis, Trading with Ashley, Mark Yegge, and most YouTube options educators teach the wheel because it's simple to explain — not because it's the best strategy
- There is a dramatically better alternative: selling short-dated premium to finance call debit spreads on the same stocks (the "Financed Bull" approach) — which captures upside rather than capping it
- My real 2025 trading results used the Financed Bull approach — not the wheel — and this is not a coincidence
What the Wheel Strategy Actually Is
Before I dismantle it, let's define it fairly. The Wheel Strategy — sometimes called the "triple income strategy" — has four steps that form an endless loop:
- Sell an out-of-the-money cash-secured put on a stock you'd be willing to own
- If the put expires out-of-the-money, collect the premium and repeat step 1
- If the put goes in-the-money, take assignment of 100 shares per contract at the strike price
- Once you own the shares, sell out-of-the-money covered calls against them. Continue selling calls until the shares get called away — then go back to step 1
Proponents call it "the perpetual income machine." Marketing materials promise 12–24% annual returns with "low risk." Every popular options YouTuber has a wheel video. Tastytrade's entire "premium selling is insurance" philosophy leans heavily on wheel-adjacent mechanics. It sounds reasonable. It's simple to execute. And it quietly destroys returns on any multi-year horizon.
Here's why.
The Core Problem: Capped Upside, Full Downside
This is the mathematical problem that nobody teaching the wheel wants to explain clearly. The Wheel Strategy creates the worst possible risk/reward asymmetry in options trading:
- On the upside: Your shares get called away at the covered call strike. You collect a tiny premium and miss the bulk of any rally. If NVDA runs from $500 to $900, you were called away at $550 and pocketed $15 in premium. You gave up $335 per share of upside for $15.
- On the downside: You own 100 shares per contract. If the stock drops 40%, you lose 40% of your capital, minus the tiny premium you collected. The wheel offers zero real protection against real drawdowns.
Think about what this means over a full market cycle. Markets go up roughly 70% of the time and down 30% of the time. In the 70% of years when stocks rally, the wheel caps your upside to a tiny fraction of the actual gains. In the 30% of years when stocks fall, the wheel gives you no protection. You lose to the upside when you're right, and you lose to the downside when you're wrong. That's not a strategy — that's a slow-motion wealth transfer from you to the option buyers on the other side of your trades.
For a cautionary tale about undisciplined premium selling, see my breakdown of the OptionSellers.com disaster.
The Real Numbers on NVDA (2023–2026)
Let's make this concrete. A trader who ran the wheel on NVDA from early 2023 through 2025 — using a standard 30-delta put selection and $10 out-of-the-money covered calls after assignment, would have captured roughly 20–30% of the total NVDA return during the 2023–2025 AI boom. A simple buy-and-hold investor in the same stock captured close to 100% of it.
The wheel cost that trader tens of thousands of dollars per contract in opportunity cost. And those are real dollars — not "paper losses." The trader who held NVDA outright now has capital to deploy elsewhere. The wheel trader does not.
The Capital Efficiency Problem (The Hidden Cost)
Here's a critique of the wheel that almost nobody discusses, but it's one of the strongest mathematical arguments against the strategy.
Owning stock requires 2.5–3x more buying power than simply selling the equivalent cash-secured put. When you sell a put on a $500 stock at the $480 strike, your broker requires roughly $9,600 in cash collateral (under Reg T margin, often less). Once you take assignment and own the actual shares, you're tying up the full $48,000 in stock value.
This means the same dollar of capital can support roughly 2.5–3x more put-selling positions than wheel positions. A trader running pure short puts on a $100K account can have 3x the diversification, 3x the premium income, and 3x the flexibility of a wheel trader on the same account.
The wheel takes one of the most capital-efficient strategies in finance (selling premium) and forces you to lock up capital in low-yielding stock ownership. This is the opposite of what sophisticated options traders should want.
The "Roll Down" Advantage You Lose
There's another subtle but important problem. When you sell a pure cash-secured put and the stock drops, you have a powerful tool: rolling down. You can buy back the threatened put and sell a lower-strike put further out in time, often for a small net credit. This lets you:
- Decrease the strike price by $5–$10 for a typical net cost of $2–$3
- Recoup that cost by extending the option's duration
- Avoid assignment entirely in many cases where the stock drops temporarily
The wheel kills this option. Once you're assigned, you're stuck holding the stock. You can't roll down. You can only sell covered calls — and as I'll show in the next section, those calls often make your situation worse, not better.
The "Locking In Losses" Trap
Here's a specific, extremely damaging wheel failure mode that almost nobody warns retail traders about.
Imagine you sell a cash-secured put on NVDA at a $500 strike. NVDA drops to $420. You get assigned at $500, so your cost basis is $500 per share (minus the small premium you collected). NVDA is now trading at $420. You are down $80 per share, or $8,000 per contract.
Now the wheel says: sell a covered call. But at what strike?
- If you sell a call at $500 (your cost basis), the premium is tiny because the stock is $80 away. You'll collect maybe $2.
- If you sell a call at $440 (closer to the money, for more premium), you just capped your upside at $440 — which means if NVDA rallies back to $500, you lock in a $60 loss per share.
Most wheel traders, eager for premium, sell calls at strikes below their cost basis. Then the stock rallies. They get called away at a loss. The premium they collected is nowhere near enough to offset the locked-in loss from selling calls too cheap.
This is not a rare edge case. This is what happens to wheel traders every time a stock they're wheeling has a 15%+ drawdown followed by a recovery — which is most multi-year periods in most stocks.
The Covered Call ETF Graveyard (Real-World Proof)
Don't take my word for it. Look at the performance of the major covered call ETFs, which are literally just the wheel strategy executed at institutional scale with professional traders running them:
- JEPI (JPMorgan Equity Premium Income) — marketed as a high-income covered call fund — has meaningfully underperformed SPY since inception
- QYLD (Global X NASDAQ-100 Covered Call) — runs covered calls on QQQ — has underperformed QQQ by a massive margin over 5+ years
- NUSI (Nationwide Risk-Managed Income) — a "protective net-credit collar" variant of the wheel — has dramatically underperformed SPY
- XYLD (Global X S&P 500 Covered Call) — runs the same strategy on SPY itself — has underperformed the underlying index it's supposed to harvest income from
Every single major covered call ETF has underperformed its benchmark. These funds are run by institutional traders with better execution, better commissions, better tax treatment, and 24/7 risk management than any retail wheel trader will ever have. And they still lose to simple buy-and-hold.
If the professionals running this strategy can't make it work, what makes retail traders think they can?
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The 3 Narrow Cases When Selling Covered Calls Makes Sense
To be intellectually honest: there are exactly three specific scenarios where I would consider selling a covered call. None of them constitute "running the wheel as a primary strategy." They are tactical, situational, and rare. To be clear: tactically selling a covered call in one of these specific scenarios is fundamentally different from systematically running the wheel as an income strategy.
1. The Security Is Significantly Overbought
If a stock has run up sharply on speculative momentum and shows clear signs of being technically overbought, a covered call at a slightly out-of-the-money strike can lock in some premium while you wait for a pullback. This is a tactical hedge, not an income strategy.
2. The Market Is Crashing and You Want Extra Premium
During a volatility expansion (VIX spike), put-side premium is rich but call-side premium is also elevated. If you already own the underlying and you're hedged elsewhere, selling a far-out-of-the-money covered call can add incremental income. Again — tactical, not systematic.
3. You Want to Sell Your Shares Anyway
If you've already decided to exit a position, selling an in-the-money call that expires within a few days lets you collect a small premium on top of the planned exit price. This is a clever way to squeeze a few extra basis points out of an exit you were going to make anyway.
Notice what's NOT on this list: "Generate consistent monthly income." "Reduce my cost basis on a long-term holding." "Run a perpetual wheel for years." Those use cases all underperform the alternatives I'll cover below.
Why Every YouTube Options Educator Teaches the Wheel
If the wheel is so bad, why does every popular options YouTuber teach it? Three reasons, none of which have anything to do with the wheel actually being the best strategy:
1. It's Simple to Explain on Camera
The wheel has four steps. You can teach it in a 10-minute video. More sophisticated strategies (call debit spreads financed by put premium, tactical hedging, VIX-filtered index income) require hours of explanation and more experience to execute. Simple content is easier to monetize than good content.
2. Their Audience Wants a Formula, Not a Framework
Retail traders want a plug-and-play recipe. The wheel provides one. The fact that the recipe produces mediocre returns is invisible to new traders until they've been running it for years. By then, the YouTuber has already collected their course sale.
3. The YouTuber Isn't Actually Trading It
Most "wheel strategy" YouTube educators don't show verified brokerage statements of their own wheel performance. The ones who do often show short windows (one good year) that happen to coincide with a bull market — which is exactly when any long-biased strategy looks good. Ask any wheel educator for their 5-year verified returns vs. SPY. You'll almost never get an answer.
This pattern is clearest with Tastytrade and Tom Sosnoff's "tastylive" content empire, which teaches a wheel-adjacent approach (plus the 45 DTE framework I've explained elsewhere). Tastytrade doesn't actually have verified long-term performance data showing their methodology beats the market — because if they did, it would be their lead marketing message. It's not, because they don't.
The Better Alternative: The Financed Bull Approach
So if the wheel is flawed, what do I actually do instead?
I use the premium from selling short-dated puts to finance call debit spreads on the same large-cap stocks. I call this the "Financed Bull" approach. Here's how it's fundamentally different from the wheel:
| Feature | Wheel Strategy | Financed Bull |
|---|---|---|
| Upside capture | Capped at covered call strike | Captures full upside of call spread |
| Downside exposure | Full stock ownership risk | Defined, limited |
| Premium collection | Yes (but small) | Yes (from short puts) |
| Capital required | 100% of share value | Fraction of share value |
| Capital efficiency | Low (2.5–3x more buying power required) | High |
| Works in flat markets | Yes | Yes |
| Works in bull markets | ❌ Underperforms | ✅ Outperforms |
| Works in bear markets | ❌ Fully exposed | ✅ Hedged via spread |
The key insight is that I use short put premium to buy directional upside rather than to cap it. This single change inverts the wheel's risk/reward geometry. Instead of giving up upside for pennies of premium, I'm using the premium to leverage into upside at zero net cost.
The execution details — specific structures, strike selection, position sizing, hedging — are what I teach my paying members at BestStockStrategy's options alerts service. The philosophy is what everyone should understand: you want premium to finance your upside, not cap it.
This is what I mean by "be the house, not the gambler" — and it's also why I don't run the wheel. The wheel makes you the house on a terrible table.
Use the calculator below to see the actual dollar difference between the Wheel Strategy and the Financed Bull approach across different market environments. Enter the starting capital, expected stock appreciation, and premium collected to see why capping your upside at the covered call strike destroys long-term returns compared to using that same premium to buy call spreads.
Wheel vs. Financed Bull Return Comparator
The Wheel Strategy:
Annual Return:
$0
Annual Return %:
0%
The Financed Bull:
Annual Return:
$0
Annual Return %:
0%
Financed Bull Advantage:
Extra Dollars Earned:
$0
Additional % Return:
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Tool by BestStockStrategy.com — Simplified illustrative model. Actual results vary based on strike selection, timing, and market conditions.
Best Stocks for the Wheel Strategy (If You Insist on Running It)
If you're going to run the wheel despite everything I've said above — and many traders will, because the wheel's psychological appeal is genuinely strong — then at least do it on the right stocks. Here's what I'd recommend.
The Right Profile for Wheel Stocks
- Large market capitalization ($50B+ minimum, ideally $200B+)
- High options liquidity (tight bid-ask spreads, high open interest)
- Stable fundamentals (consistent earnings, strong brand, durable competitive advantage)
- Moderate implied volatility (high enough for meaningful premium, low enough to avoid catastrophic drawdowns)
- Stocks you genuinely want to own long-term if assigned
Lower-Priced Wheel Candidates (Under $250 as of 2026)
For traders with smaller accounts who need lower-priced underlyings to manage position sizing, reasonable wheel candidates include:
- PayPal (PYPL) — solid brand, moderate IV
- Blackstone (BX) — large-cap financial with options liquidity
- Disney (DIS) — recognizable name, options market depth
- Starbucks (SBUX) — defensive consumer, lower volatility
- JP Morgan (JPM) — best-in-class large-cap bank
- SoFi (SOFI) — higher IV, only for traders comfortable with volatility
Note: stock prices change frequently — verify current prices before trading. The principle (large-cap, liquid options, stable fundamentals) matters more than the specific tickers.
Index ETFs Are Often Better Than Single Stocks
If you're committed to running the wheel, broad index ETFs (SPY, QQQ, IWM) typically outperform single-stock wheels because:
- Lower idiosyncratic risk (no earnings surprises, no CEO scandals)
- More predictable volatility patterns
- Tighter bid-ask spreads
- Diversification built-in
But notice: even if you do this perfectly, you're still capping your upside on the underlying. The wheel's structural problem doesn't go away just because you picked the right ticker.
My Real Results Don't Use the Wheel
I publish my actual E*TRADE statements to prove my strategy works. Over the past 11–12 months, my two trading accounts returned approximately +78% and +63% respectively, with only two small down months on each account. See the full verified monthly breakdowns in Can You Make a Living Selling Options?
None of those returns came from running the wheel. I don't wheel stocks. I don't sell covered calls to "generate income." I use short put premium to finance directional upside, and I hedge with defined-risk structures. That's the entire difference between capping upside (the wheel) and capturing upside (Financed Bull).
For a complete breakdown of the account sizes needed to execute a real premium-selling strategy, read How Much Money Do You Need to Sell Options?.
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More Resources About the Options Wheel Strategy
You can access these resources, although be cautious that the resources below frequently promote the wheel WITHOUT discussing the many major downsides:
The Wheel Strategy Website: https://thewheelstrategy.com/
Schwab Resources about the Wheel Strategy: https://www.schwab.com/learn/story/three-things-to-know-about-wheel-strategy
Reddit Discussion About the Wheel Strategy: https://www.reddit.com/r/Optionswheel/comments/1gpslvk/the_wheel_aka_triple_income_strategy_explained/
Frequently Asked Questions
Is the wheel strategy profitable?
Yes — in the narrow sense that it generates positive returns in a bull market. But it dramatically underperforms both buy-and-hold and more sophisticated premium-selling strategies over any multi-year horizon. Profitable is not the same as optimal. The wheel is the worst-performing profitable options strategy I know of.
Does the wheel strategy beat SPY?
No. Over any rolling 5-year period I've examined, a disciplined wheel trader underperforms SPY. The best proof is the institutional covered call ETFs (JEPI, QYLD, NUSI, XYLD) — all of which dramatically underperform their benchmarks despite being run by professional traders.
How much money do you need to run the wheel strategy?
Realistically, at least $7,500–$10,000 to run a single wheel position on a moderately priced stock. To diversify across 3–5 wheel positions, you'd want $25,000–$50,000 minimum. Below that, you can't run the strategy with proper position sizing — and undisized wheel positions are how accounts blow up.
What is the biggest risk of the wheel strategy?
The biggest risk is opportunity cost during bull markets — the wheel caps your upside, so when the market rallies (which is most of the time), you capture only a fraction of the gains. The second biggest risk is locking in losses by selling covered calls at strikes below your cost basis after assignment.
What are the best stocks for the wheel strategy?
Large-cap, fundamentally sound companies with liquid options markets. Reasonable candidates include PYPL, DIS, JPM, SBUX, BX. Index ETFs (SPY, QQQ) are often better than single stocks because of lower idiosyncratic risk. Avoid penny stocks and meme stocks entirely — their options are often illiquid and the underlying can collapse permanently.
Why do YouTube traders teach the wheel if it underperforms?
Because it's simple to explain, easy to monetize as a course, and looks good during bull markets. The traders who actually generate superior long-term returns use more sophisticated strategies that are harder to teach and harder to sell as a $497 course.
What's a better alternative to the wheel strategy?
The Financed Bull approach: use short put premium to finance call debit spreads on the same large-cap stocks. This captures upside rather than capping it, and uses defined-risk structures to limit downside. It's more complex than the wheel, which is why most YouTubers don't teach it — but the performance difference over time is enormous.
Is Tastytrade's wheel approach any better?
No. Tastytrade teaches a wheel-adjacent approach combined with their 45 DTE / 21 DTE management framework, which carries its own serious problems (vega risk during volatility expansions). I've explained why I reject the 45 DTE approach in detail in Can You Make a Living Selling Options?. The fact that Tastytrade is the largest options education brand on the internet does not make their methodology correct.
Does the wheel work in a bear market?
No. During bear markets, the wheel leaves you fully exposed to the downside on stocks you've been assigned, while the tiny premium from covered calls provides minimal protection. The wheel offers no real downside protection, despite being marketed as "safer than stock ownership."
When does selling covered calls actually make sense?
In three narrow tactical scenarios: (1) when a stock is significantly overbought and you want to lock in some premium while waiting for a pullback, (2) during a market crash when premiums are rich and you're already hedged elsewhere, and (3) when you've already decided to sell shares and want to squeeze extra premium from the exit. Outside these specific cases, systematic covered call selling underperforms.
Should I stop running the wheel strategy?
If you're running the wheel purely for income generation or to beat the market, yes. There are better strategies. If you're running the wheel as a slightly-better-than-buy-and-hold entry method on stocks you genuinely want to own for 10+ years, it's defensible but not optimal. Either way, my free training walks you through a significantly better framework: Get access here.
Disclaimer: Options trading involves significant risk and is not suitable for every investor. The information presented is for educational purposes only and does not constitute financial, investment, or tax advice. Past performance, including trading results shown, is not indicative of future results. You can lose substantially more than your initial investment when trading options, particularly when selling naked options. Always consult a qualified financial advisor and tax professional. David Jaffee and BestStockStrategy are not registered investment advisors.