Wheel strategy is one of the safest strategies you can find in the market. This primarily involves 2 legs: selling cash-secured puts (CSP) and selling covered calls ( CC). It starts with the first leg of selling a cash-secured put on a stock that you want to own at a certain price. You then keep selling puts until assigned and once assigned you then start selling covered calls against the same stock until it gets called away. That completes a full circle and you start again from the beginning by selling puts. In all of this, you collect a premium at every step plus any capital gain on the stock that you get when your stocks are called away.
You can read complete detail on how to run a successful wheel here.
In this article, I will be going through five of the best stocks and funds to run a profitable wheel.
Best underlying for wheel strategy | Best stocks for wheel strategy 2023
SPY
The SPDR S&P 500 trust is an exchange-traded fund that trades on the NY stock exchange under the symbol (SPY). SPDR is an acronym for the Standard & Poor’s Depositary Receipts the former name of the ETF. It is designed to track the S&P 500 stock market index. This fund is the largest and oldest ETF in the world. There are a lot of traits that SPY satisfies to run a successful wheel strategy. Let’s look at those factors:
Pros
High Liquidity: SPY is probably the highly traded ETF on the NY stock exchange, making it a perfect candidate for the wheel.
Low Volatility: SPY has lower volatility so it doesn’t make wild swings unless there is a major economic or other events that impact the wider market. Having low volatility makes SPY ideal for wheel strategy.
Expiration days: SPY has multiple expiration dates in a single week, unlike any other stocks/funds which typically have weekly/monthly options only.
Cons
Low Premiums: This is an inverse effect of having low volatility. SPY does not fall into the high-swing ETFs, so it tends to provide low premiums.
QQQ
Invesco QQQ is an exchange-traded fund (ETF) that tracks the Nasdaq-100 Index™. The Index includes the 100 largest non-financial companies listed on the Nasdaq based on market cap. Based on daily traded volume, QQQ is the second-largest fund in the United States.
Pros
High Liquidity: Similar to SPY, QQQ is also one of the highly traded funds on the NY stock exchange, making it a perfect candidate for the wheel.
Growth: QQQ tracks the top 100 tech companies that primarily operate out of the US and that makes it really attractive to take advantage of growth while leveraging the wheel strategy.
Cons
Tech Heavy: QQQ comprises all companies in the tech sector and that makes it slightly speculative and pronto higher swings.
Volatility: QQQ is of medium volatility hence you can expect a slight bit of swings but compared to individual stocks this is still a better choice for running the wheel.
TNA
TNA falls into the high-risk and high-reward categories. This index fund measures the performance of approximately 2,000 small-capitalization companies in the Russell 3000® Index, based on a combination of their market capitalization. The fund invests at least 80% of its net assets in financial instruments, such as swap agreements, securities of the index, and ETFs that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.
This is a 3X leveraged index so there is an inherent risk of owning this fund and it is only meant to hold for a small period of time. Do not plan to hold this in your portfolio as a long-term fund. Do your research about 3X leveraged risk before planning on investing in any of the leveraged funds.
Pros
Huge Premiums: TNA gives one of the best bucks for your money in terms of premiums. This is a good instrument to leverage yourself rather safely by keeping a small percentage allocated to this.
High Volume: TNA is also one of the most traded funds in the stock market so you will not have issues closing or rolling off your options if they don’t go in your favor.
Cons
3X Leverage/High Risk: As mentioned earlier this is a leveraged ETF and can do down significantly in fund value during market drops. It magnifies your losses so wheel this weekly with a small % of your overall portfolio.
TQQQ
TQQQ also falls into the high-risk and high-reward categories. This leveraged ProShares ETF seeks a return that is 3x the return of its underlying benchmark (target) for a single day, as measured from one NAV calculation to the next. The underlying benchmark target here is the Nasdaq 100 which primarily is made of the top 100 companies listed in NASDAQ by their market capitalization.
This is a 3X leveraged index so there is an inherent risk of owning this fund and it is only meant to hold for a small period of time. Do not plan to hold this in your portfolio as a long-term fund. Do your research about 3X leveraged risk before planning on investing in any of the leveraged funds.
Pros
Huge Premiums: TQQQ again will give you one of the best bucks for your money in terms of premiums. This is a good instrument to leverage yourself rather safely by keeping a small percentage allocated to this.
High Volume: TQQQ is also one of the most traded funds in the stock market so you will not have issues closing or rolling off your options if they don’t go in your favor.
Cons
3X Leverage/High Risk: As mentioned earlier this is a leveraged ETF and can do down significantly in fund value during market drops. It magnifies your losses so wheel this weekly with a small % of your overall portfolio.
GOOG
Google is one of the top 5 companies that probably every fund worldwide has exposure to. It has a robust pipeline of revenue and is well diversified. Google has shown the best track record in terms of being a stable stock throughout the covid and post covid recession fears. The medium volatility and strong fundamentals make it one of the best stock-for-wheel strategies that you can play for the long term.
Pros
Strong fundamentals: Google is a great combination of having growth and strong fundamentals. It gives you a solid amount of growth without putting your money into a speculative stock.
Volatility: Google has medium volatility and in most market conditions it will go in a range-bound fashion which makes it a great fit for wheel strategy.
High Liquidity: Google is traded widely in major exchanges and that makes it very liquid in nature. You will not find any issues closing or rolling off the options.
Cons
Medium Premiums: You cannot expect very high premiums however it would be better than some of the other stable stocks in the market.
FAQ
What stocks are good for wheel strategy?
Best stocks for wheel strategy include index funds with good volume like SPY, QQQ, TNA, and TQQQ. Some other recommended stocks for wheel strategy are Amazon ( AMZN) and Google ( GOOGL).
Is wheel strategy profitable?
Yes, the wheel strategy is profitable. It is considered one of the safest strategies in the stock market that are bound to give consistent weekly/monthly income provided the right underlying are chosen.
Is the wheel option strategy good?
Yes, the wheel option strategy is considered one of the safe option strategies.
How much money do you need to use the wheel strategy?
You can start the wheel strategy with as low as $2000. You can always increase the amount as you start to generate weekly profit.
Is the wheel strategy better than buy and hold?
Both are considered different investment strategies. Wheel strategy can make you consistent income weekly or monthly depending on how you set it up. In comparison, the buy-and-hold strategy will not give any income until you sell your stocks.
If you have any questions related to this list or wheel strategy in general you may reach out to our team at [email protected], contact us or leave a comment.
1 thought on “Best Stocks For Wheel Strategy [updated 2023]”