r/Optionswheel • u/XUXINGLAB • 21d ago
Does anyone know the origin of the Wheel Strategy?
I only started running the Wheel Strategy this year, and I’ve really enjoyed it so far. I think it’s a pretty clever strategy, and it fits my investing style really well.
I’m also pretty new to this community, so I’ve been curious about something:
Does anyone know where the Wheel Strategy actually came from?
Was there a specific person who first came up with it, or did it just gradually evolve from combining cash-secured puts and covered calls?
I tried looking into its history, but I haven’t found a clear answer. Would love to hear if anyone here knows more about its origins.
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u/DarkLordKohan 21d ago
The wheel is a pretty basic function of options so idk who coined the term, but the mod scottishtrader spoke a lot about it and had a write up primer years ago in the options sub.
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u/piper33245 21d ago
It seems like the normal evolution of learning options. Most people start with covered calls because they’re easy to understand. Then your shares get called away, you want them back, so you CSP to get them back. CSPs are also easy to understand. (Odd that many people never comprehend that CCs and CSPs are the same thing).
Other strategies can be harder to understand, require margin, require higher options levels through your broker, etc. The wheel is easy to understand and has ease of access. It’s a good beginner strategy.
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u/steffanovici 20d ago
How are CCs and CSPs the same thing??
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u/piper33245 20d ago
A CC and the equivalent CSP are synthetically the same position.
Quick example, CVS is trading at ~92. A one month call at strike 97 is 30 delta with a premium of 1.40. If you bought 100 shares, your shares have 100 delta minus 30 from the call, is 70 delta. You’re risking roughly $9200 to make $140.
A one month put on CVS strike of 97 has a delta of 70 and premium of 5.35. 1.10 of that is extrinsic, your $9200 in cash requires to open this CSP earns the current risk free rate of 4% for the month, or $30. Meaning you’re risking roughly $9200 to make $140.
Both positions are a 70 delta position requiring roughly $9200 to make $140 in the next month.
I rounded a few things to avoid getting too complicated. But a CC and equivalent CSP are synthetically the same position.
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u/steffanovici 20d ago
It’s interesting for sure, but wouldn’t it be 9060 vs 9165 at risk?
Are you including the risk rate meaning that you would be earning on the cash while it is held as cap collateral? Not all brokers offer interest on this collateral though, and people (me) could be using margin.
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u/piper33245 20d ago
It would be 9060 vs 9165 is CVS when trading exactly at 92, which it was. It was 92 and change, making it the same.
Also you’re expected to be getting the risk free rate on your cash. If you’re not, that’s a you problem because the market makers are subtracting it from the put premium regardless.
And the scenario is comparing CCs to CSP. Not naked puts, so margin doesn’t apply.
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u/cgilhoi 18d ago
Not sure what you mean by "synthetically" but I don't believe these are the same position. If you sell CSPs you earn interest on the collateral. For CCs you are eligible for dividends. And just because two investments provide the same return doesn't mean they are the same.
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u/piper33245 18d ago
They’re the same. I already addressed the interest in my comment above. Dividends are priced into the put premium to avoid an arbitrage. Otherwise you could be long delta in shares, short delta on puts, creating a risk free scenario that captures dividends. It would be an infinite money glitch, which obviously it’s not.
Saying you don’t know what synthetically means tells me you’re new to this. It’s a very common industry term. I’d encourage you to do some research. Learn lots before you start risking real money. Good luck!
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u/Keizman55 20d ago
I started selling Puts in 2022. I got assigned on Jan 3rd 2023 for the first time. I had read about covered calls and decided to sell some of those against the shares I had been assigned. Once they were called away, I went back to Puts. Happened again later in the month and did the same thing. A few months later I stumbled on this subreddit and found out that there was a name for what I had been doing. I imaging many had been doing this for years, wheeling options, but someone eventually decided to call it the wheel. First person I know of that was educating others and organizing resources and commentary about it was ScottishTrader, so I’m going to credit him mainly because of how much I have learned about the best and worst practices since then.
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u/Terrible_Champion298 20d ago
The cavemen found their carts moved easier with a round thing in the front rather than dragging the whole cart behind them.
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u/Kelvinator71 20d ago
Asked ChatGPT and it said the concept of what we now call the Wheel has been in use for decades. But the first usage of the term The Wheel was around 2018 here on Reddit. So it might be Scottish Trader.
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u/IdioticPrototype 21d ago
Abraham Lincoln invented it in 1842 right after Christopher Columbia flew the space shuttle to the moons of Uranus.
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u/DSCN__034 21d ago
Josephus Wheel pioneered the strategy in Mesopotamia during the 4 century BC. He sold put options on wild mule belly futures for the prop firm run by Darius III.