The Put Wheel is an options trading strategy, applicable in crypto and traditional finance, that systematically involves selling cash-secured put options on an underlying asset. The primary intent is either to acquire the asset at a favorable price if the puts are assigned, or to generate premium income by repeatedly selling options.
Mechanism
The strategy commences with the sale of out-of-the-money put options, thereby collecting premium income. Should the underlying asset’s price decline below the strike price by expiration, the investor is obligated to purchase the asset. Once the asset is owned, the strategy transitions to selling out-of-the-money covered call options against the acquired holdings, again generating premium. If the calls expire worthless, the cycle repeats with new put options; if assigned, the asset is sold.
Methodology
The strategic rationale behind The Put Wheel is to generate consistent income through collected option premiums while simultaneously positioning to acquire a desired asset at a discount or sell it at a profit. This approach is considered relatively conservative, suitable for investors who are fundamentally bullish on an asset long-term and comfortable with holding it, leveraging the options market to enhance returns or manage precise entry and exit points in crypto investing.
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