The wheel strategy calculator is a valuable tool for options traders, especially those employing the wheel strategy. It aids in performing various calculations related to selling put and call options, determining break-even prices, calculating returns, and assessing premiums. By providing quick and accurate results, this calculator streamlines the decision-making process for investors.
Formulas of Wheel Strategy Calculator
Put Option Premium Calculation:
The premium you receive for selling a put option is your initial income. Formula: Put Premium = Option Price x Contract Size
Break-Even Price for Put Option:
This is the price at which your stock purchase becomes profitable when you exercise the put option. Formula: Break-Even Price = Strike Price – Put Premium
Return on Cash-Secured Put:
This is the return on your cash if the put option is exercised. Formula: Return (%) = (Put Premium / (Cash Reserve – (Strike Price x Contract Size))) x 100
Covered Call Premium Calculation:
The premium you receive for selling a covered call is additional income. Formula: Call Premium = Option Price x Contract Size
Total Return if Stock is Called Away:
If you exercise the covered call, your total return includes both the initial put premium and call premium. Formula: Total Return = Put Premium + Call Premium
Break-Even Price for Covered Call:
This is the price at which your covered call strategy becomes profitable when you exercise the call option. Formula: Break-Even Price = Purchase Price of Stock – Call Premium
Return on Covered Call:
This is the return on your stock investment if the call option is exercised. Formula: Return (%) = (Call Premium / Purchase Price of Stock) x 100
General Terms and Conversions
To make using the wheel strategy calculator more accessible, here’s a table of general terms that people often search for when dealing with options trading:
| Term | Definition |
|---|---|
| Strike Price | The price at which an option can be exercised. |
| Contract Size | The number of units in a single options contract. |
| Cash Reserve | The amount of cash set aside for options trading. |
| Premium | The price of an options contract. |
| Exercise | The act of using an options contract to buy or sell the underlying asset. |
| Stock Purchase | Buying the underlying stock when a put option is exercised. |
| Stock Investment | The value of the stock portfolio. |
Example of Wheel Strategy Calculator
Let’s illustrate how the wheel strategy calculator works with an example:
Suppose you want to calculate the Put Premium for an options contract with an Option Price of $20 and a Contract Size of 10.
Put Premium = $20 x 10 = $200
The Put Premium is $200.
Most Common FAQs
The wheel strategy is an options trading strategy that involves selling cash-secured puts and, if assigned, selling covered calls on the underlying stock.
To calculate the Break-Even Price for a Covered Call, subtract the Call Premium from the Purchase Price of the Stock.
