Short options
What is the Options Wheel Strategy and how do I transition between CSPs and Covered Calls?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
The options wheel involves repeatedly selling cash-secured puts to potentially acquire shares, then selling covered calls on those shares once assigned, cycling between the two strategies to generate ongoing premium income on a chosen underlying stock.
How it works
Traders typically select stocks they are comfortable owning long-term, since the wheel can result in holding shares through downturns while waiting to sell covered calls back above the cost basis.
An example
After being assigned 100 shares from a cash-secured put at $40, an investor sells a $42 covered call; if shares are called away, they return to selling cash-secured puts to restart the cycle.
Risk & limitations
OIC notes the wheel does not prevent losses during sustained downtrends, and prolonged share ownership below the entry price can offset collected premiums.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.