The Wheel Strategy on Robinhood: A Beginner’s Step-by-Step Guide

Disclaimer: This article is for educational purposes only and is not trading, tax, or investment advice. Options can lose money. You can lose more than the premium you collect if the stock drops after assignment. Past results do not guarantee future results. Some links are affiliate links.

The wheel strategy is one of the first options income methods new traders hear about. On Robinhood, it is also one of the few you can run with basic options approval: sell a cash-secured put, take the shares if you get assigned, then sell a covered call until the shares are called away.

It is not a shortcut to easy money. It is a way to get paid while you wait to buy a stock you already want, then get paid again while you wait to sell it. The strategy only works if you treat assignment as part of the plan, not as a surprise.

If you do not have a Robinhood account yet, join here to claim your free stock. Then read our guides on opening a cash account and buying shares on Robinhood before you apply for options.

This long beginner walkthrough covers the full wheel cycle, stock selection, and common mistakes.

What the Wheel Strategy Is

The wheel is a loop made of two trades:

1. Sell a cash-secured put on a stock you would be willing to own.
2. If the put expires worthless, keep the premium and sell another put.
3. If you get assigned, you now own 100 shares per contract.
4. Sell a covered call against those shares.
5. If the shares get called away, you are back in cash. Start over.

You collect premium at each step. That premium is the income. The stock move is the risk.

What You Need on Robinhood First

You cannot start the wheel with a basic stock-only account. You need:

• A funded Robinhood brokerage account
• Options approval that includes covered calls and cash-secured puts, usually Level 2
• Enough cash to buy 100 shares at your put strike
• A stock or ETF with liquid weekly or monthly options

Robinhood holds collateral when you sell these options. For a cash-secured put, it sets aside enough cash to buy 100 shares at the strike. For a covered call, it locks 100 shares you already own. You cannot spend that cash or sell those shares while the option is open.

A cash account keeps the strategy simpler for beginners. Margin can change the capital rules and the risk. If you are still learning the platform, stay cash-secured and do not size the trade as if the broker’s buying power is free money.

Need an account first? Join here to claim your free stock.

How Much Cash You Actually Need

One options contract controls 100 shares. The cash you must set aside is:

Strike price × 100

Examples:

• $15 strike = $1,500 reserved
• $25 strike = $2,500 reserved
• $50 strike = $5,000 reserved
• $100 strike = $10,000 reserved

That is why beginners should start with lower-priced, liquid names they understand, not a $300 stock that ties up the whole account in one trade. If one assignment would freeze most of your account, the position is too big.

Step 1: Pick a Stock You Want to Own

This is the rule that saves beginners. Do not sell a put just because the premium looks fat. If the stock drops 30%, you may own it. Ask:

• Would I be fine holding this for months?
• Do I understand the business?
• Are the options liquid, with tight bid-ask spreads?
• Can I reserve the cash without stressing my budget?

Avoid using rent money, emergency-fund money, or a stock you only picked because implied volatility is high. High premium usually means higher crash risk.

Step 2: Sell a Cash-Secured Put

On Robinhood:

1. Open the stock.
2. Choose Trade, then Options.
3. Pick an expiration. Many beginners start around 30 to 45 days out.
4. Choose a put strike below the current price, at a price you would actually pay.
5. Select Sell to open.
6. Check the premium, the cash Robinhood will hold, and your max loss if the stock goes to zero.
7. Submit the order.

Example:

• Stock trades at $22
• You sell the $20 put for $0.60
• You collect $60
• Robinhood reserves about $2,000

If the stock stays above $20 through expiration, the put expires and you keep the $60. Then you can sell another put.

If the stock finishes below $20, you can be assigned 100 shares at $20. Your effective cost is $20 minus the $0.60 premium, or $19.40, before fees.

Assignment is not a failed trade. In the wheel, it is how you move to the next step.

Step 3: If Assigned, Sell a Covered Call

After assignment, Robinhood shows 100 shares in the account. Then:

1. Open the stock you now own.
2. Sell a call against those 100 shares.
3. Choose a strike at or above your effective cost basis if you want to avoid locking in a loss.
4. Collect the new premium.

If the stock stays below the call strike, you keep the shares and the premium. You can sell another call.

If the stock rises through the call strike, your shares can be called away at that strike. You keep the premium plus any gain from your cost basis up to the strike. You do not keep the extra gain above the strike.

That last part is the trade-off. Covered calls cap your upside. In return, you get paid while you hold the stock.

A Full Beginner Cycle

Using the same simple numbers:

1. Sell the $20 put for $0.60 and collect $60.
2. Stock drops. You are assigned 100 shares at $20. Cost basis: $19.40.
3. Sell a $21 covered call for $0.40 and collect $40.
4. Shares get called away at $21.

Stock profit: $21 − $19.40 = $1.60 per share, or $160.
Call premium: $40.
Put premium already counted in the cost basis.
Total profit before fees: $200 on $2,000 reserved, over however many weeks the cycle lasted.

That is the clean version. The ugly version is the stock falling to $12 after assignment. The premiums help a little. They do not erase a large drop.

The Risks Beginners Underestimate

• The stock can fall a lot. A cash-secured put has the same downside shape as buying the stock at the strike, minus the premium.
• Your cash is tied up. That reserved $2,000, $5,000, or $10,000 cannot be used elsewhere until the option is closed or assigned.
• Covered calls cap the rally. A stock can gap higher on earnings and leave you called away at a strike you already sold.
• Selling calls below your cost basis can lock in a loss if the shares are assigned away.
• Earnings weeks and cheap meme stocks can produce premiums that look great and losses that are not.
• One position can dominate a small account. If the wheel uses half your cash, you are not diversified.

The wheel is safer than naked short options. It is not safer than owning an index fund. If your goal is long-term market exposure with less decision-making, a simple S&P 500 ETF may still be the better core holding. See how to invest in the S&P 500 on Robinhood.

Beginner Rules That Keep You Out of Trouble

• Only wheel stocks you would buy outright.
• Use cash you can leave alone for weeks or months.
• Start with one contract.
• Keep the position small enough that assignment is uncomfortable, not account-breaking.
• Avoid selling puts through earnings until you understand the gap risk.
• Track cost basis after every premium. Your “price” is strike minus premiums collected.
• Do not turn this into day trading. Pattern-day-trader rules can still matter if you open and close stock trades too often in a margin account under $25,000.

How to Place the Trades in Robinhood

Cash-secured put: Stock page → Options → choose expiration → tap a put strike → Sell → review collateral and premium → swipe to submit.

Covered call: Own 100 shares first → Options → choose expiration → tap a call strike → Sell → Robinhood should recognize it as covered → review → submit.

After you submit, check the position details. Confirm the shares or cash are held as collateral. At expiration, if you are in the money, assignment can happen automatically. Do not assume you can wait until Monday to “decide.”

Who Should Not Use the Wheel Yet

Skip this strategy for now if:

• You do not have an emergency fund
• You cannot afford 100 shares of anything without stress
• You have not paper-traded or watched one full expiration cycle
• You want unlimited upside on a favorite stock
• You think options premium is guaranteed income

Learn the platform with small stock and ETF buys first. Then apply for options. Then paper the wheel on one name before using real size.

Final Thoughts

The wheel is a patient strategy. You sell a put to get paid for a buy price you chose. You sell a call to get paid for an exit price you chose. The cycle works when the stock is one you wanted anyway and the position is small enough to survive a drop.

It fails when the premium becomes the only reason you sold the put.

If you are starting from zero on Robinhood, open the account, fund it, and learn the order ticket before you sell your first contract. Join here to claim your free stock.