# Wheel Income Math

10 min read

Premium yield · Annualized returns

The Wheel's income is real but probabilistic. Understanding the math — premium yield, annualized return, breakeven scenarios, and the effect of assignment — helps you set realistic expectations and optimize your strike and DTE selection.

## Premium Yield Calculation

The key metric for Wheel income is the **premium yield** — what you earn as a percentage of the capital reserved.

**Formula:** (Premium collected ÷ Capital reserved) × (Days in year ÷ DTE) = Annualized yield  
**Example:** Sell $6.00 put on $6.20 stock for $0.30. Capital reserved = $600. DTE = 14 days.

Annualized yield = ($0.30 ÷ $600) × (365 ÷ 14) = 0.5% × 26.1 = 13.1% annualized.

| Stock price | Strike | Premium | Capital reserved | 14-day yield | Annualized |
| --- | --- | --- | --- | --- | --- |
| $5.10 | $5.00 | $0.25 | $500 | 5% | ~13% |
| $5.10 | $5.50 CC | $0.35 | $510 (owned) | 6.9% | ~18% |
| $7.20 | $7.00 | $0.30 | $700 | 4.3% | ~11% |
| $4.75 | $4.50 | $0.20 | $450 | 4.4% | ~11.5% |

## The TELL Example — Full Wheel Math

Stock: TELL at $5.10. You decide to run a full Wheel cycle:

**Phase 1 (CSP):** Sell $4.75 put for $0.25. Stock stays above $4.75. Premium collected: $25. Capital used: $475 reserved, $0 deployed.

**Assignment (if stock drops below $4.75):** You receive 100 shares at $4.75. Effective cost: $4.75 – $0.25 = $4.50.

**Phase 3 (CC — red day):** Stock at $5.10, down 3.2% today. Sell $5.50 call for $0.35. Capital deployed: $510. Premium collected: $35. Cost basis now: $4.50 – $0.35 = $4.15.

**If called at $5.50:** $5.50 – $4.15 = $1.35 gain per share = $135 on $510 = 26.5% total return.

**If not called (stock at $5.20 at expiration):** Shares still owned. Sell another CC next week. Each cycle reduces cost basis further.

## When the Wheel Underperforms

The Wheel underperforms when a stock has a significant breakdown — assigned at $6.00 and the stock goes to $4.00. No covered call strategy recovers quickly from a 33% drawdown. This is why Pass 1 quality filtering is critical — you're only wheeling stocks with solid fundamentals and structure, not speculative names.

The "would I hold 30 days?" test is your primary protection against this scenario. If you're not comfortable owning the stock at the put strike in a bad market, don't sell the put.

8-lane income target — realistic numbers

8 lanes × $30 average premium per 2-week cycle × 2 cycles/month = $480/month gross. After one lane in assignment (temporarily not generating CC income), estimate $350–$400/month net. On $8,000 capital deployed = 4.4–5% monthly = 52–60% annualized before taxes. These are realistic targets, not guarantees.