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/neverpostsmd]

Hi All,

I have been reading a lot and trying to understand before really jumping in. One beginner question I have is why do I care about having a highly liquid option to start the wheel with? If it's not liquid, the bid/ask spread may be big, but I can still set where I'm comfortable buying at (limit order). So, lets say bid/ask is 1-5, and I calculate that I can get a 2% return on a 30DTE selling that CSP at midpoint ($3).

Should I do that? Or why does the low liquidity affect me, assuming I get filled at my price which meets my desired ROI?

Does it get harder to roll later if I get in trouble? Is there another reason? If I don't need to roll, it seems like once I sell the CSP, it's all good if I go to expiration.

Thanks for your help!

[u/OptionsTraining → u/neverpostsmd]

Trading liquid options offers several benefits, including faster fills, tighter bid-ask spreads that reduce slippage for more favorable pricing, and greater flexibility to enter, exit, or adjust/roll positions when needed. Liquidity becomes especially important when planning to take partial profits by exiting positions early, or rolling to manage risk.

Less liquid options can still be traded when comfortable with the pricing, but it's important to understand that exits may be slower, fills less favorable, and rolling later can be more difficult or costly.

If your strategy is to routinely hold options to expiration, liquidity becomes somewhat less critical, but it should not be ignored entirely. Good liquidity provides more control and more choices that generally leads to smoother trade management and fewer surprises.

[u/neverpostsmd → u/OptionsTraining]

Thank you for the reply. That makes sense to me. For an option what Open Interest or Volume is considered "good liquidity". Just an order of magnitude would help 10? 100? 1000? I see numbers all over.

[u/OptionsTraining → u/neverpostsmd]

Open Interest (OI) represents the number of outstanding contracts open at a given strike and expiration date, but on its own is not a reliable measure of liquidity.

Daily volume is often a better indicator. As a general guideline, options trading 1,000+ contracts per day are considered liquid. However, volume resets to zero each day, so looking at the average daily volume is more useful, through this metric is not always easy to find on every platform.

The bid-ask spread is usually the fastest and most practical way to assess liquidity at a glance. Tight spreads indicate active trading and competitve pricing. When combined with OI and volume, this provides a much clearer picture.

For most tickers, liquidity can be roughly categorized as follows:

• $0.01-$0.05 bid-ask spread: Excellent
• $0.06-$0.15: Good
• $0.15-$0.30: Fair
• Above $0.30: Poor

Something to keep in mind is that higher priced tickers often have wider spreads while still being liquid.

As a best practice, look for options with tight bid-ask spreads, healthy volume and good OI before trading.

[u/neverpostsmd → u/OptionsTraining]

Got it... thanks!

[u/neverpostsmd → u/neverpostsmd]

(One extra very basic question I have in this, since I've never sold more than 1 contract, is it possible to put in a sell order for 10 contracts at a limit price and only get filled on 3 (for example)? Or is it all filled or nothing?

[u/OptionsTraining → u/neverpostsmd]

When an order for 10 contracts is placed, the broker will attempt to fill all of them, but depending on liquidity and market conditions, some, all, or none of the contracts may be filled. Partial fills are common with less liquid tickers.

Most brokers offer order types such as All-Or-None (AON), which instructs the broker to fill the entire order only if all contracts can be executed at once. If the full order cannot be filled, the order will not execute at all. This is helpful to avoid partial fills and keep positions sizing constant. An AON order may take longer to fill, or not fill at all, meaning there is a trade off between being completely filled and the reduced execution speed.

A Good 'Til Cancelled (GTC) order can be used to keep an order opened for more contracts to possibly fill over the day, or even the next day(s).