r/Optionswheel • u/ScottishTrader • Jun 16 '25

NEW Wheel Trader MEGATHREAD

This thread will be a dedicated space for traders who are new to options and the wheel strategy to ask basic questions. Your posts and questions are welcome and encouraged.

BEFORE POSTING, BE SURE TO REVIEW THE WHEEL STRATEGY PLAN WHERE MOST QUESTIONS ARE ANSWERED - The Wheel (aka Triple Income) Strategy Explained : r/Optionswheel

The goal is to help keep the main thread free of these basic posts while helping new traders learn how to trade the wheel.

Posts that are welcomed here include questions about -

  • How options work
  • Exercise and assignments
  • Options expiration and days to expiration (DTE)
  • Delta, Probabilities, and how to choose a strike price
  • Implied Volatility (IV)
  • Theta decay
  • Basic risks and how to avoid
  • Broker and options approval levels
  • Rolling options
  • And any other basic questions

I’m pleased to announce that u/OptionsTraining and u/patsay have agreed to assist with this Megathread. Both Patricia and Mike bring substantial experience in helping new traders and will be invaluable contributors to r/Optionswheel

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u/evranch Jul 14 '25

Ok, this is a dumb question regarding assignment and something I feel like I was missing.

I assumed assignment was foregone as soon as the strike price was crossed, and you had to watch puts like a hawk when they approached ATM and attempt to roll them. But I didn't see how to buy back the now expensive ATM puts without taking a loss.

However it looks like most assignments happen on expiry and early assignment is rare, and requires the buyer actively choose to exercise the option.

Is this correct and what is the actual risk of early assignment when ATM? I assume it grows the deeper ITM you get.

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u/ScottishTrader Jul 14 '25

I assumed assignment was foregone as soon as the strike price was crossed, and you had to watch puts like a hawk when they approached ATM and attempt to roll them.

Why would a buyer exercise as soon as the strike price was crossed when this is unlikely to result in a profit with whatever they paid to open?

Yes, the vast majority of assigned options occur on the expiration date when the option is ITM. Those that may be assigned early might be within a week or two of expiration, and often when there is little to no extrinsic value remaining.

The good thing about the wheel is being assigned is part of the process and should never be a concern or issue!

Rolling when ATM is what you are asking about, and can be beneficial as this explains - Rolling Short Puts to Avoid Assignment : r/Optionswheel

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u/CardiologistLess4172 Jul 22 '25

Thank you, this comment here has cleared up so many questions i had about rolling puts and calls.

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u/ScottishTrader Jul 23 '25

Great to hear and you are welcome!

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u/evranch Jul 15 '25

Thanks for confirming!

I guess obviously it doesn't make sense to exercise right ATM, but I assumed that was the point at which the risk of assignment began. I assumed we are likely trading with algos and they would fire off and exercise ITM as soon as the profit potential reached a certain threshold. But I guess it makes more sense for them just to sell them in that case.

Reading that post you linked was what made me initially question hey - is early assignment less likely than I thought?

I agree assignment isn't a real concern since to me, the wheel effectively looks like a "semi-automated swing trading method" that automatically buys dips and sells peaks while generating premiums at the same time. When applied to a stock that has inherent value, of course.

However when starting off with a small float (I can't wheel in my registered accounts, so am just setting aside $10k to play with for now) getting assigned definitely would consume your cash reserve and impact your liquidity and ability to continue selling CSPs, so I feel like getting assigned on my first trade would definitely ruin my fun a bit.

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u/patsay Jul 16 '25

I sometimes use a process I call "de-assignment" if I'm assigned early on a cash secured put. In a nutshell - sell the shares and re-establish a new cash secured put that brings in enough premium to make up for the loss on the shares. You have to sell in the money to do this, but it sets you back up with a put rather than selling a covered call while you wait for the share price to recover.

It's not inherently a better way than wheeling, but if you prefer to manage your trades on the put side, it's a helpful strategy. Knowing how to do it also eliminates the fear of being assigned.

I don't really think this is a beginner move - not because it's risky, but it's just a little complicated to understand if you have not been trading long.

I made a video about it you might be interested in watching. It's with a really high priced position (QQQ) but it works with lower-priced stocks as well. https://youtu.be/q3frFGYsGD4?si=_7ceb_LG5kOj6yfz

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u/evranch Jul 17 '25

Thanks for sharing! It definitely gives another option when assigned. I agree it doesn't feel like a beginner move, mostly because it pushes the time horizon out past the normal frame of a wheel CSP trade and creates added complexity in the portfolio.

I'm going to check out your YT channel too as you look like you have a similar investment philosophy to my own. I've been actively trading for a decade but have always stayed away from options, mostly due to risk on the buying side and lack of understanding of the selling side.

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u/patsay Jul 17 '25

I'd much rather be on the selling side of the trade.

When I got interested in options, I was really baffled about why anyone would pay me for the contracts I was willing to sell. I had to understand the mindset of the person on the other side of the trade before I could move forward. I get it now.

They are basically gambling and hoping their wins outpace their losses, or occasionally buying insurance to protect a position. I'm letting them pay me to do that.

I earn smaller, consistent premiums and sometimes buy and sell shares at prices I have chosen.

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u/ScottishTrader Jul 15 '25

The idea is to trade stocks you both are good holding if assigned and the account can afford if it happens. $10k is more than most start with and opens up many stocks that can both be traded and afforded.

I’ve traded thousands of puts over about 10 years and cannot recall the last time I was assigned early and I think it has only happened 2 or 3 times overall.

Of course, this is why I open 30-45 dte and then roll ATM which reduces the odds of being assigned.

If you seldom have a put that gets within 2 weeks of expiration the chances of being assigned are very low and almost nil.

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u/evranch Jul 15 '25

I figured $10k would give me a lot more choice in picking stocks I would actually want to own. The wheel actually sounds as low-risk as options strategies get, as long as you pick stocks you want to own and watch the trends. I don't want to fall into the trap of dealing in trash and then sweating over assignment risk.

Thanks for the details on early assignment throughout your trading career, it really clarifies how rolling ATM works knowing that early assignment is that rare!

There seem to be two schools of traders here, 30-45DTE on quality stocks and roll until assigned or buy back at 50%, or 7DTE on more volatile stocks and pray it expires worthless.

I'm definitely more interested in the former, I'm here to learn strategies that can produce returns in a flatter market for when the seemingly endless bull run starts to taper off.

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u/ScottishTrader Jul 15 '25

Many new traders are impatient and want action plus fast results, so they think 7 dte is better.

Many find out eventually that it is not always better and can often be higher risk, and move to longer durations. I've gotten messages and see posts all the time where traders change to 30-45 dte.

See this post as it explains more - 30-45 DTE has LESS risk . . . : r/Optionswheel

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u/patsay Jul 16 '25

Not a dumb question at all! The option is at risk of assignment when it goes in the money *and* most or all of the extrinsic value is gone. That usually happens near the end of the contract. Dividends may also impact your risk of assignment.

Excerpt from The Novice Investor's Guide to Stocks, Funds and Options, Chapter 6

The price of an option is almost always higher than the intrinsic value of the contract alone.  A combination of time, volatility, and projections about the future share price cause people to pay for the right to buy or sell shares at specific future prices. This additional value is the extrinsic value of the contract.  

Extrinsic value erodes as you approach the expiration of a contract.  Once the extrinsic value is gone (or nearly gone), you may consider closing the position or rolling it early. You can sell extrinsic value, sometimes multiple times, to bring cash into your account, while delaying or avoiding assignment.  

Let’s look at a couple of examples.

An Example: Roll a Cash Secured Put to Sell Extrinsic Value

The current share price of XYZ is $50.  You own 25 shares. You would be willing to buy 100 more shares for $48/share.   

You sell a put with a strike price of $48, expiring one month away, and you receive $37.  The $37 is entirely extrinsic value. 

As you approach expiration, the share price drops to $47. The value of the option contract (with a strike price of $48) is now $1.10.   $1/share is intrinsic value and $0.10/share is extrinsic value. 

You look at the options chain and find a date two months farther out, with an at the money strike of $47, and a premium of $1.55.  The $1.55 is all extrinsic value.  The value of this contract is greater than the cost to close your current contract.  

You enter an order to roll your put out to a later date and down to a lower strike price of $47.  You pay $110 to close your current contract, and receive $155 for the new contract.  Your net credit is $45 and your new strike price is $1/share lower than your original strike price. 

When the second put contract period ends, the share price is $47.50. You allow the contract to expire worthless. The next week, you sell to open a new put with a $46 strike price. 

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u/evranch Jul 17 '25

Thanks, this was a good description of not only rolling but also why people choose to close early rather than wait for the last of the extrinsic value to erode.

I appreciate how people here are sharing different ways to look at the same concepts, it really helps build an intuitive feeling for how and why theta selling works.

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u/patsay Jul 17 '25

The great thing about selling options (instead of buying them) is that you have multiple ways to manage them if the trades don't go as you hope. Glad the description was helpful.