The wheel strategy explained simply: options in a cycle

The wheel strategy links two option transactions into a cycle. First a put is sold, later a call on the shares acquired. With each option sold, the selling side receives a premium. The profit remains limited, however, and if the share falls sharply, the selling side bears almost the entire loss.

The name refers to the steps turning in a circle, like a wheel. The basics are explained in the article on what calls and puts mean.

What is the wheel strategy?

The wheel strategy is not a product of its own. It is a sequence of two well-known building blocks: first a covered put, then a covered call. Covered means that whoever takes on the obligation is also able to meet it. With the put, the money for the purchase is set aside. With the call, the shares are held in the securities account.

Both building blocks suit a price that stays roughly the same or rises slightly. The Options Industry Council (OIC) names one prerequisite: being willing to own the share at the strike price. The OIC is an educational initiative of the OCC, a US body that clears options transactions.

The process in four steps

1. A put is sold. The money to buy the shares is set aside.
2. Price at expiry above the strike price: the put expires, the premium is kept, back to step 1. Price below it: the shares are assigned.
3. A call is sold on the shares.
4. Price at expiry above the strike price: the shares are called away and the wheel starts again. Price below it: the shares stay in the securities account and a new call follows.

Phase 1: Selling a put

Practitioners call this step a cash-secured put. The amount set aside is the strike price times the number of shares in one contract, that is, one option agreement. This number depends on the share. On Eurex, an exchange for options on Swiss shares in CHF, it is 100 for Nestlé and 10 for Swisscom (as of 27 October 2026).

Phase 2: A call on the shares held

After an assignment, a call is sold on the shares. This is a covered call. The shares must be freely available for this. The profit is limited to the rise up to the strike price. The building block on its own is covered in the article on how a covered call strategy works.

What happens on assignment?

If a buyer exercises their put, the clearing house Eurex Clearing selects a selling side at random. All open sold positions in the same option series are eligible, meaning the same option type, underlying, strike price and expiry. The assigned side must take delivery of the shares at the strike price. The bank books them into the securities account, two exchange trading days after exercise in the case of Nestlé options.

The cost basis, meaning what the shares cost on balance, is the strike price minus the premium received. From this point on, the selling side bears the full price risk of the share.

Assignment can also come earlier. Eurex equity options are generally American-style: they can be exercised on any trading day up to expiry. European options can only be exercised on the expiration date. With a call, early exercise can occur above all around dividend dates. The selling side then misses out on the dividend.

Without delivery, there is no wheel. Options on the Swiss Market Index (SMI) are cash-settled, and no shares are delivered. Eurex does, however, also offer options on exchange-traded funds (ETFs) under which fund units are delivered.

Alongside exchange-traded options, there are warrants. These securities are issued by an issuer that takes on the option writer's role itself. The wheel strategy, by contrast, requires exchange-traded options that investors can sell themselves, as on Eurex.

Worked example: a full cycle in CHF

Both phases can be played through in the calculator below. The break-even point is the price at which there is neither a profit nor a loss. In phase 1 it is 93. In phase 2 it is 93.50, because the calculator does not include the put premium there. With the put premium, it would be 91.50. In both phases, the profit is limited to the premium.

Results of the numerical example above, freely chosen values:

What happens if the price falls sharply?

Case C shows the weakness of the wheel. After the assignment, the share falls to 60. With a cost basis of 93, the book loss is 33 per share, or CHF 3,300, with the put premium already taken into account. If the share becomes worthless, the loss is CHF 9,300 less any call premiums: the strike price times 100 shares, minus the put premium.

The upside remains capped

Even the good case comes at a price. In case B, the share rises from 90 to 100, but because of the call the shares are called away at 95. The rise above that is forgone: 5 per share, or CHF 500. The call premium of CHF 150 only offsets part of this.

The further the price rises above the strike price, the more profit is forgone. This creates an imbalance. The possible profit is small and limited, while the risk of loss largely matches that of holding the share.

Risks and limits

The wheel strategy can lead to high losses, up to close to the entire amount invested.

• No protection against price losses: If the share falls below the strike price, there is a risk of substantial losses. The Swiss Bankers Association (SBA) states in its risk brochure of June 2023: ‘In option-writing transactions, there is no hedge against price losses on the underlying.’
• No guaranteed income: In its summary on the wheel strategy from June 2026, the OIC writes: ‘Collecting premium does not guarantee a profitable outcome.’ Why such payments are not secure by themselves is explained in the article on regular income from dividends, interest and option premiums.
• Limited profit, a single share: Price gains above the strike price of the call are forgone, and the result depends on a single share.
• Tied-up money: During the term, the money is set aside or invested in the shares. Sellers of options post collateral, and the bank sets the amount. Selling puts without the full purchase amount can lead to losses greater than the collateral posted. If the collateral is not sufficient, the bank can demand more or close the position.
• Exercise at an inopportune time: American options can be exercised at any time, including in very unfavourable market conditions.
• Counterparty: With exchange-traded options, the central clearing house, which on Eurex is Eurex Clearing, stands between buyer and seller. With warrants, the issuer itself is the counterparty. If it defaults, a loss can result.
• Shares that are hard to sell: After an assignment, the shares must be taken on even if they can only be sold at a large loss or not at all.
• Fluctuating prices: Part of the premium is time value. It depends on the remaining term and on how much the price fluctuates, so option prices change constantly. For more, see the article on how price, time and volatility move the option price.
• Costs and effort: Bank fees, the bid-ask spread (the difference between the buying and selling price) and exchange fees, including on exercise, reduce the result. According to the OIC, both steps require ongoing monitoring.

Taxes in Switzerland (as of 27 October 2026): For direct federal tax, option premiums are generally not part of taxable income for private individuals. This is set out in Circular No. 15 of the Swiss Federal Tax Administration (ESTV) of 3 October 2017. Losses on options held as private assets are not tax-deductible. Circular No. 36 of 27 July 2012, however, sets out five criteria. If all of them are met, the ESTV assumes private asset management in every case. One of them is that options are used only to hedge one's own securities. Anyone who uses them in another way does not meet this criterion. Whether this then amounts to professional securities trading, and no longer private asset management, is assessed case by case. Personal circumstances and cantonal practice may differ.

Conclusion

The wheel strategy links a sold put and a sold call on the same share into a cycle. In the example, the two premiums together bring in CHF 350 if the shares are called away again at the strike price. If the share falls to 60, a book loss of CHF 3,300 remains nonetheless. If it rises sharply, the profit above the strike price of the call is forgone. The risk is therefore largely similar to that of holding the share, with limited profit.