How to Run the Wheel Strategy on Robinhood: Your Complete Setup Guide
Getting Started: Robinhood and the Wheel
Thinking about running the wheel strategy but Robinhood is your broker of choice? Good news: you absolutely can. While Robinhood might have a reputation for simplicity, it handles the core mechanics of the wheel just fine.
You'll sell cash-secured puts, potentially get assigned shares, and then sell covered calls. It's a straightforward process once you know where to click. Let's walk through getting set up and executing your first trades.
Step 1: Get Options Level 2 Approval
Before you can sell puts or calls, Robinhood needs to approve you for options trading. For the wheel strategy, you'll need at least Level 2 approval. This allows you to sell cash-secured puts and covered calls, which are the building blocks.
To apply, go to your account settings, find 'Investing', and then 'Options Trading'. Robinhood will ask a few questions about your experience and financial situation. Be honest, and you should get approved fairly quickly.
Step 2: Selling Your First Cash-Secured Put (CSP)
This is where the wheel begins. You're betting a stock won't drop below a certain price by expiration. If it does, you'll buy 100 shares per contract.
Here's how to do it on Robinhood:
- Pick a good stock. Look for large, liquid companies you wouldn't mind owning long-term. Think Microsoft (MSFT), Apple (AAPL), or an ETF like SPY.
- Find the stock. Search for your chosen ticker in Robinhood.
- Go to Options. Tap 'Trade' then 'Trade Options'.
- Select 'Sell' and 'Put'. Choose your expiration date, typically 30-45 days out for a good balance of theta decay and time.
- Choose your strike price. Most wheel traders aim for a delta around 0.30. This gives you a decent premium with about a 70% chance of the option expiring worthless.
Here's how premiums can look for MSFT, trading around $430, with 35 days to expiration:
| Strike | Delta | Premium (per share) | Premium (per contract) | Probability of Profit |
|---|---|---|---|---|
| $430 | 0.48 | $7.00 | $700 | ~52% |
| $425 | 0.32 | $4.50 | $450 | ~68% |
| $420 | 0.22 | $2.80 | $280 | ~78% |
Once you've chosen your strike and expiration, review the order and swipe up to submit. The cash required for the put will be held in your account as collateral.
Close puts early when you hit 50% of max profit. Let theta decay do its work, then lock in profits and free up capital to re-enter. Don't get greedy.
Step 3: Handling Assignment (or Not)
If your put expires out of the money (OTM), you keep the premium and the cycle can restart. If it expires in the money (ITM), you'll be assigned 100 shares per contract at your strike price.
Robinhood will automatically deposit the shares into your account on the Monday morning after expiration. Your cost basis for these shares will be the strike price minus the premium you originally collected.
Step 4: Selling Covered Calls (CCs)
Now that you own 100 shares (thanks, assignment!), you move to the second leg of the wheel. You'll sell a covered call against those shares. This brings in more premium and lowers your net cost basis further.
On Robinhood, it's similar to selling a put:
- Find the stock you now own.
- Go to Options. Tap 'Trade' then 'Trade Options'.
- Select 'Sell' and 'Call'. Choose an expiration (again, 30-45 DTE is a good starting point).
- Choose your strike price. Pick a strike that is at or above your net cost basis. This ensures that if the shares are called away, you'll still make a profit or break even.
Review and submit. The shares you own act as collateral for the call.
Robinhood Specific Quirks: Manual Rolling & P&L
Robinhood is great for simplicity, but it does lack a dedicated 'roll' button for options. If you want to roll a put or a call (close your current position and open a new one further out in time or at a different strike), you'll need to do it in two separate trades: first, 'buy to close' your existing contract, then 'sell to open' the new one.
Another common frustration for wheel traders on Robinhood is how it displays profit and loss. Robinhood often treats each leg of the wheel as a separate transaction, which can make your overall P&L look a bit wonky.
For example, an expired put might show as a 'loss' because the premium 'disappeared', even though it was profit. Or, assigned shares might show an immediate paper loss if the stock dipped below your strike. This makes it hard to see your true, aggregate profit from the entire wheel cycle.
This is where tools like ThetaPal come in. ThetaPal integrates with Robinhood and other brokers to give you a holistic view of your wheel positions, tracking your net P&L across all legs and assignments, so you always know where you stand.
The Catch: What to Watch Out For
While Robinhood makes the mechanics easy, the wheel strategy still has risks. Sharp market downturns can leave you assigned shares far above the current market price, making it tough to sell covered calls for a profit.
You also tie up capital when selling puts. Ensure you're comfortable with potentially owning the stock you're selling puts on, especially if it drops significantly. Don't chase high premiums on highly volatile stocks you wouldn't otherwise hold.
Final Thoughts
Robinhood is a perfectly viable platform for running the wheel strategy. Its user-friendly interface makes executing trades simple. Just be mindful of its limitations for rolling and P&L tracking, and consider using a dedicated analytics platform to get the full picture of your wheel's performance.