The four numbers you need before opening anything, and what they mean from the seller's side.
2 min read
Moneyness describes where the stock price sits relative to the strike. Most explanations are written from the buyer's point of view, which inverts the meaning for everything on the wheel — as a seller, in the money is the outcome you were paid to accept, not the one you were hoping for.
| Term | Short put | Short call |
|---|---|---|
| Out of the money (OTM) | Stock above strike — expires worthless, you keep the premium | Stock below strike — expires worthless, you keep the shares |
| At the money (ATM) | Stock ≈ strike — could go either way | Stock ≈ strike — could go either way |
| In the money (ITM) | Stock below strike — you'll be assigned shares | Stock above strike — shares get called away |
ITM isn't failure
A short put going in the money means you're about to buy a stock you already said you'd buy, at a price you already agreed to, having been paid for the privilege. Whether that's bad depends entirely on whether you still want the stock — not on the label.
Every option premium splits into two parts. Intrinsic value is how far in the money it is right now — real, immediate value. Extrinsic value is everything else: time and implied volatility. Extrinsic value always decays to zero by expiration, which is exactly what an option seller is selling.
Splitting a premium
Stock at $47. The $50 put trades at $3.60.
Intrinsic: $50 − $47 = $3.00 (it's $3 in the money).
Extrinsic: $3.60 − $3.00 = $0.60.
Only that $0.60 decays. The $3.00 moves with the stock.
$50 put for $1.20 → break even at $48.80.$70 call for $35 → you need $105 to break even at expiration.The price you paid for shares is not what they cost you. Every premium collected across the cycle reduces it, and that running total is what determines whether a covered call is safe to sell.
Basis falling across a cycle
Sold the $50 put for $1.20 → assigned at $50. Basis: $48.80.
Sold a $52 call for $0.90, expired worthless. Basis: $47.90.
Sold another $52 call for $0.85, expired worthless. Basis: $47.05.
The stock hasn't moved, but selling a $48 call is now profitable where it started as a loss.
Your broker won't show you this
Most platforms display the raw purchase price as cost basis and treat each option premium as a separate closed trade. That's correct accounting and useless for deciding which call to sell. Tracking the cycle-adjusted basis is the whole reason Wheel Folio carries premium forward automatically.
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.
Covered Calls
Renting out shares you already own — and the one strike rule that stops it going wrong.
The Greeks & Implied Volatility
Four numbers that tell you what a position will do next. Delta and IV rank do most of the work.