The selection step that decides most of your outcome, before any strike is chosen.
2 min read
Most wheel outcomes are decided here rather than at strike selection. A good strike on a bad stock still leaves you holding the bad stock. The wheel is, structurally, a strategy that hands you shares at the worst moment — so what you're really choosing is what you're willing to be handed.
$400 stock is $40,000 of collateral. Sizing is a stock-selection constraint, not an afterthought.Unusually rich premium is a warning, not an opportunity
Option premium is priced off expected movement. A put paying 8% a month is not a mispricing you found — it's the market's assessment that the stock might fall a long way, and the market is usually right about which stocks are risky. New wheel traders screen for the highest yields and end up assigned on exactly the names that keep falling. Yield is a symptom; the underlying business is the thing.
| Criterion | Reasonable starting range | Why |
|---|---|---|
| Share price | $20–$120 | Collateral stays manageable per contract |
| Average volume | Over 1M/day | Liquid stock usually means liquid options |
| IV rank | 30–60 | Premium worth collecting without extreme risk |
| Bid/ask on the option | Under ~5% of premium | Wide spreads eat returns on entry and every roll |
| Next earnings | After your expiration | Avoids paying yourself to hold a gap |
These are starting points to argue with, not rules. Wheel Folio's Wheel Score applies criteria like these across a list you upload or screen live, so the comparison is consistent instead of done by eye. See the Greeks for what IV rank actually measures.
Concentration is the risk that actually ends accounts. Five positions across five uncorrelated names behave very differently from five contracts on one ticker, even though the premium looks similar. Diversifying across sectors matters more than it seems, because the market drops that assign you are precisely the ones that move whole sectors together. More on this in risk and sizing.
Educational only
Nothing here is investment, financial, or tax advice. Options carry risk, including losing more than the premium collected, and the examples use round numbers to show the mechanics rather than to suggest a trade. Read risk and position sizing before putting real money behind any of it.
Cash-Secured Puts
Getting paid to wait for a price you'd be happy to buy at — and what it costs when you're wrong.
Risk & Position Sizing
The part that decides whether a bad month is annoying or account-ending.
The Greeks & Implied Volatility
Four numbers that tell you what a position will do next. Delta and IV rank do most of the work.