Options Income Quick Reference

Covered calls, cash-secured puts and the wheel — the formulas, the strike-selection rules of thumb, and the mistakes that bite traders most. Print this page or save it as a PDF.

From The Options Bench — calculators, guides, and the math behind every strategy.

Cash-Secured Put (CSP)

Sell a put; set aside cash to buy 100 shares if assigned.

  • Cash required (per contract): strike × 100
  • If expires worthless: keep the premium
  • If assigned (stock ≤ strike at expiry): buy 100 shares at strike; effective cost basis = strike − premium
  • Return on capital (if worthless): premium ÷ strike
  • Annualised: return × (365 ÷ days to expiration)

When to use: you would happily own the stock at a lower price and want income while waiting.

Covered Call (CC)

Own 100 shares; sell a call against them.

  • If expires worthless: keep the shares + the premium
  • If called away: sell 100 shares at strike; total $ profit = (strike − cost basis + premium) × 100
  • If-called return (on today's capital): (strike − price + premium) ÷ price
  • Static return (if worthless): premium ÷ price
  • Downside protection: premium ÷ price
  • Breakeven on the shares: cost basis − premium

When to use: neutral to mildly bullish on a stock you are happy to sell at the strike.

The Wheel

CSP → if assigned, sell a CC → if called away, back to CSP. Loop.

  • Track one number cycle-to-cycle: total net premium collected to date
  • Effective cost basis: assignment strike − (total premium ÷ shares)
  • Goal: drop the effective cost basis below where the stock recovers to

Cardinal rule: only run the wheel on a stock you actually want to own.

Rolling a short put (when it goes against you)

  • Net credit on a roll: (new premium × new contracts − buyback × old contracts) × 100
  • New breakeven: new strike − (total net premium ÷ shares)

Three repair stages — always use the lowest that pays:

  1. Roll DOWN and OUT — same contracts, lower strike, still a net credit
  2. Roll STRAIGHT OUT — same strike, later, for a net credit
  3. EXPAND and roll down and out — add contracts to fund a bigger drop; ties up more capital — last resort

Always aim for at least a small net credit. A debit roll defeats the point.

Strike selection cheat-sheet

Delta Roughly P(in-the-money) Use case
10–15 10–15% Very safe; small premium. Insurance-like.
25–30 25–30% Standard income strike — the CC / CSP sweet spot
40+ 40%+ Aggressive; high premium and high assignment chance. Pick when you actively want assignment.

By distance: 4–7% out of the money for the standard income strike. By DTE: 30–45 days is the time-decay sweet spot for selling.

Common mistakes

  • Chasing fat premiums on volatile stocks. Rich premium = high IV = real risk; one 20% drop wipes out years of income.
  • Ignoring ex-dividend dates. In-the-money calls are most likely to be assigned early the day before a stock goes ex-dividend.
  • Rolling for a debit. Paying out of pocket to roll defeats the income mission.
  • Expanding contracts too early. Stage 3 of the repair sequence ties up far more capital — exhaust Stages 1 and 2 first.
  • Running the wheel on a stock you don't want. On a name you would never hold, one bad cycle ends the wheel.
  • Treating annualised return as guaranteed. A 70% figure assumes 12 perfect cycles; real years include assignments, gaps and quiet stretches.