Investors looking for effective strategies to build wealth may find the “Wheel” strategy particularly appealing. This approach, which involves selling cash-secured puts and covered calls, offers a structured method for generating income while gradually acquiring shares of preferred stocks.
The Wheel strategy is an evolution of the Covered Strangle. It begins by selling an out-of-the-money (OTM) cash-secured put to earn premium income. If the put option is exercised, the investor acquires shares at a desirable price. Subsequently, the investor sells covered calls against those shares to continue generating income. This cycle repeats until the shares are called away, allowing the investor to start the process anew. This strategy is especially suitable for patient investors who seek steady income and want to invest in high-quality companies.
Three Stocks to Consider for the Wheel Strategy
Recent activity in the options market highlights three stocks that may be ideal for implementing the Wheel strategy. These stocks have shown unusual options activity, indicating potential opportunities for investors.
Workday (WDAY) has exhibited significant options activity, with eight put options trading yesterday. Notably, four of these options are set to expire between 28 and 60 days. The January 16, 2026, $185 put stands out, as it is currently 14.1% OTM. The annualized return from selling this put is estimated at 4.3%, aligning closely with the yield of a 30-year Treasury bill. Workday’s enterprise value stands at $54.45 billion, with an EBITDA multiple of 38.9, according to S&P Global Market Intelligence. Despite appearing expensive, the company has reported a free cash flow of $2.59 billion over the last twelve months, translating to a free cash flow yield of 4.7%. Analysts are generally optimistic about Workday, with 28 out of 39 providing a Buy rating and a target price of $282.18.
Next, Robinhood Markets (HOOD) has garnered attention due to high trading volumes, including 581,878 options contracts yesterday, which is approximately 1.6 times the 30-day average. Among these, there are two puts expiring on December 26, with the $115 strike price being particularly noteworthy. Selling this put would yield $365 in premium income, offering an impressive annualized return of 39.9%. The analysis suggests a 77.7% probability that Robinhood’s share price will remain above $111.35 at expiration. Despite a challenging November, where shares fell from a high of $150.47 to a low of $102.10, Robinhood’s projected revenue growth of 33% over the next two years makes it a stock to watch.
Lastly, SoFi Technologies (SOFI) has experienced substantial growth, with its stock rising 85% year-to-date. Currently trading at $28.49, SoFi’s strong performance is attributed to its innovative business strategies under CEO Anthony Noto. The stock’s premium valuation remains a topic of discussion, particularly as analysts express mixed feelings. Out of 24 analysts, only seven rate it as a Buy, with a target price of $27, slightly below its current trading value. The unusual options activity for SoFi includes the January 2, 2026, $26 put, which is 8.7% OTM. Selling this put could generate $104 in premium income, with an annualized return of 41.1%. The probability of the share price exceeding $24.96 by expiration is approximately 74.2%.
In conclusion, the Wheel strategy offers a structured approach for investors keen on generating income and building equity in strong companies. With stocks like Workday, Robinhood, and SoFi showing promising options activity, investors may find these to be valuable additions to their portfolios. As always, thorough research and consideration of individual risk tolerance are essential before engaging in any investment strategy.
