Options Wheel Strategy Example: How to Roll Puts Step-by-Step
In this case example, we show what happens when a stock drops 20% after we sold a put for the Wheel strategy.
We rolled the put options to avoid assignment, waiting for the stock to eventually recover so we could close the trade with a profit.
Contents
On March 27, 2025, we sold the $52.50 put option on Bristol Myers Squibb (BMY) with an expiration date of July 18th (about three and a half months out).
The stock was trading at $59.21 per share at the time, and we received a $1.43 per-share credit for selling the put option.
Since one put option represents 100 shares, we collected $143 at the start of the trade.
We entered right here…
This was when the chart was looking quite bullish after a run-up and then accumulation.
But then the stock took a massive decline over the next month and a half.
At the close of the session on April 25th, the stock price was at $47.45 – almost a 20% drop.
Our P&L is down -$470 based on the payoff graph:
We assumed this one would be assigned, and we were prepared to take ownership if it was.
We started moving to phase 2 of the Wheel strategy and pre-emptively sold the 43-strike put for the August 15th expiration.
To do this, we generated another $177 in premium but increased the trade’s risk.
The resulting payoff graph shows that we have now increased the income potential to $300…
The next adjustment occurred on July 11th. BMY dropped a bit more to $46.86.
The $52.50 short put is deeply in the money with several days till expiration.
To delay the assignment, we roll this short put down and out.
We rolled it down to the $50 strike and out to the November 21 expiration.
The debit we paid to buy back the $52.50 is about the same as the credit we received from selling the November put ($5.00/share).
So we are rolling no cost – actually a net credit of $14 per contract.
The payoff graph now is at:
On July 22nd, BMY rallied to $48 per share.
Our August short put at $43-strike is basically worth $35 because it is far out-of-the-money and getting close to expiration.
Let’s roll it out to November as well and generate some more premium.
We buy the short put back paying $35.
And sell a November 21st put at the same $43 strike.
This gives us a credit of about $164, generating a net $129 in premium.
Now we have both short put options expiring in November, but we haven’t been assigned yet.
Our P&L is down only -$169…
Even though the stock had lost value and made a greater than one standard deviation move down.
For the next three months, we didn’t touch the trade.
On November 13th, BMY rallied up to $48.63…
We are now back in profits.
The $43 put is basically worthless, and we’re getting close to expiry, so we will buy it back at $20.
We’ll also pay $195 to buy back the $50 50-put to avoid assignment.
We combine the strikes at $46 for the February expiration by selling two put options (getting a credit of $216 each).
That will be a $217 credit for the roll.
On December 9th, BMY continued to rally to $51.42 and our P&L is around $550…
We decided to close out the trade by buying back both short-put options by paying $67 each.
Calculating:
– March 27th sold the $52.20 put: $143
– April 25th sold the Aug $43-strike put: $177
– July 11th roll the $52.20 put to Nov: $14
– July 22nd roll the Aug put to Nov: $129
– Nov 13 roll both puts to Feb: $217
– Dec 9 buy back both puts: -$134
The net P&L is $546
This trade ran for eight months and used a little bit more than $10,000 in capital.
The Wheel is better suited to larger investors due to the margin and capital requirements, especially when implementing the selling of two put options approach.
It is also for investors who are patient and can keep rolling to wait for a stock to recover in the event of a stock drop.
We hope you enjoyed this article on selling puts in the Wheel strategy.
If you have any questions, please send an email or leave a comment below.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
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