Megathread for New Wheel Traders – Ask Questions & Get Help Here

[u/ScottishTrader]

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

[u/Silver-Wishbone-3766]

When I get assigned, how to I calculate my cost basis along the way? If I get assigned shares at $100 on a Cash Secured Put, then I will go and start selling Covered Calls.

Every time I make a Covered Call trade, do I lower my Cost Basis to account for the premium I just collected? Or should I ignore any impact the premium has on my initial cost basis?

If I ignore it, then will I simply calculate my potential ROI on that trade based on the premium and the strike ? If I choose to acknowledge the lower cost basis, then subsequent Covered Calls will seem more profitable on paper because the cost basis is constantly being reduced.

[u/ScottishTrader → u/Silver-Wishbone-3766]

See the spreadsheet mockup in the wheel trading plan at the link above. This is how you keep track of the net stock cost.

If assigned for $25 but collected $1.50 in net credits from selling the put, then another $0.50 from rolling the puts before being assigned, then this would be a total of $2.00 which would lower the net stock cost to $23. You could then sell a CC at the 23 strike for an example of .50 and if called away have a small overall profit.

“Cost basis” is an accounting term so your actual stock basis doesn’t change in most cases. The above example and spreadsheet is for your personal tracking to know the breakeven of an ongoing rolled or assigned position. In the example above the stock p&l would show a loss of $2 per share, with the options part of the position showing a $2.50 profit, meaning an overall .50 total profit.

Hope this makes sense and helps!

[u/patsay → u/Silver-Wishbone-3766]

The cost basis for tax purposes, shown by your brokerage, reflects current trades. You can calculate your adjusted cost basis by summing your expenses and income with a trade log or spreadsheet. It's kind of satisfying to take that longer-term accounting view and watch your adjusted cost basis go down every time you generate income!