Why The Wheel Strategy works on ASX stocks

The Idea of the Wheel trade strategy is to collect premium via selling options, secured against cash (to take on stock) or stock as collateral is appealing to most options traders. It can reduce risk, create more consistent returns and provide hedging potential by reducing net delta exposures.

Although you might think that selling premium only works on the very volatile international technology stocks, the math says otherwise.. Let me explain. But first:

A Quick Refresher: The Wheel remembered

The Wheel strategy is a systematic process of generating income through options premiums. The process is as follows;

1. Selling Cash-Secured Puts: You begin by selling a put option (either OTM or ATM) on a high-quality stock you'd like to own at your nominated strike price. You collect a premium for this. If the stock price stays above your strike price by expiry, the option expires worthless, you keep the full premium, and you repeat the process.
2. Selling Covered Calls: If the stock price drops below your strike price and you are assigned, you now own 100 shares of the underlying stock per contract at your chosen strike price (less the premium received, which lowers your cost basis). You then pivot to selling covered calls against your newly acquired shares. You collect premium from the calls. If the stock rallies and is called away, you’ve realised a capital gain on the shares plus the call premium. If it doesn't, you keep the premium and continue selling calls until the shares are eventually assigned.
3. Some might even sell both a cash secured put and covered call at the same time - known as a covered strangle - doubling up on premium collection

The cycle of selling puts and then, if necessary, selling calls, is what gives the strategy its "Wheel" moniker. It’s a continuous loop designed to generate income from premiums at every stage.

Why Wheel on the ASX?

There are a number of advantages to deloying this strategy on the stocks available on the Aussie market

1. The ASX has listed European Options

European options can only be assigned on expiry day. One of the obsticals with selling options is the risk of being assigned early on your position, potentially being obligated to sell your shares before dividend time, or have to pay up to buy stocks sooner than you expect. Selling European options avoids those problems. Find (E) options on the options chain, usually 1c higher than the American options.

2. The high-dividend paying nature of ASX Blue Chips

The Australian market is renowned for its high-yielding, dividend-paying stocks, enchanced by their franking credit benefits for residents. This provides 2 main opportunities

1. As these blue chips pay out a large percentage of their profits, the growth (and volatility) of the stock is dampened. Stocks don't move as agressively, providing better expected outcomes. The natural positive market drift still occurs as yields grow and investors chase dividends
2. Turning sold call and sold put premium into a triple-income strategy by strategising for dividend collection, boosting income and payouts from the stock you own.

Top ASX stocks can pay 4,5,6%+ Franking, depending on the cycle. These distributions can enhance your overall strategy return.

3. Natural lower Implied Volatility - for good reason

Compared to tech-heavy indices like the NASDAQ, the ASX is far more measured. Our market is heavily weighted towards established sectors like financials, materials, and healthcare. While this might mean we miss out on some of the explosive, headline-grabbing rallies, it also means we often avoid the deep dark sell-offs. This lower-beta environment is the ideal bedrock for the Wheel.

Yes, Implied Volatilities are lower, which means premium on options are lower. But the math, even on a 20% IV stock provides the context you need.

A 30DTE ATM Put option with IV of 20% pays very close to 2% of the stock value.

Annualised, assuming you keep the premium (simple interest, not compounding) it's 24% ROI. Not too bad

Now, in reality, not every ATM put option you sell will expire worthless (It's really only 50% of them, as a 0.5 Delta option) but have this as a reference before you feel the need to trade the 50, 60, 70+% IV stocks to chase premium.

Get 8 expiring worthless, manage the rest + covered calls and dividends; I hope you can see whats possible.

This isn’t about avoiding risk; it’s about risk-adjusted returns. The ASX provides a platform where fundamentals and value tend to triumph over speculation, creating a more reliable environment for systematic ASX Options strategies, Like the Wheel to succeed.