I'm curious if there's anyone selling cash covered puts and covered calls for income. If so, what is your monthly gross return in percent and how long have you been doing it?

I'm considering selling cash covered puts and covered calls using the Wheel strategy on companies I like.

I already have a couple different branches of passive income through real estate and other investments. I also work full time.

I think the Wheel strategy might be another good investment leg based on my personal experience with selling puts. However, I haven't scaled it up yet.

One way about it I'm thinking about is earning a year in advance. So anything I earn this year would be my income for next year. That takes some of the pressure off if the market turns down.

Is anyone else doing this for regular income?

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    @S Spring - Buy-write trade secrets? LOL. Like stocks, option pricing is via an auction. Doing a Buy-write is merely a function of finding a stock that you are willing to own, picking an acceptable target sell price, and finding an acceptable premium worth selling. Commented Feb 4, 2021 at 17:19
  • No one said anything about a buy-write. A cash-covered call-write is an uncovered call-write. It's an extremely serious situation that is suggested as unlimited risk.
    – S Spring
    Commented Feb 4, 2021 at 17:34
  • But the average investor seeking high-income would probably be better off to just buy a mortgage-REIT. The mortgage-REIT is more highly leveraged than a closed-end-fund. And a mortgage-REIT might be hedged with short-term interest rates but is probably better hedged with a 1x inverse stock index. Or hedge with a sell of a DJ real estate futures.
    – S Spring
    Commented Feb 4, 2021 at 17:38
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    @S Spring - No one is talking about naked call writing except you. A Buy-Write is the same strategy as a covered call except that the two legs of a Buy-Write are executed simultaneously. But since you mentioned it, with cash and a short call, if you don't own the underlying, that's called a naked call and it has theoretically has unlimited risk. Also, the suggestion that the average investor should buy mortgage-REITs has nothing to do with the question asked. Commented Feb 4, 2021 at 17:50
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    Anthony Russell - There's no confusion about what you are doing, well for most, and that you are employing two unleveraged strategies. Regarding your linked article, I disagree with their conclusion that 1) across the market cycle, short puts and CCs are less risky than selling multiple spreads and 2) you can always continue to sell premium against your shares (see my SPY example in my answer). Further down the article under A few ways you can modify risks while running the wheel strategy, they briefly discuss vertical spreads. Commented Feb 4, 2021 at 18:38

1 Answer 1


The Wheel Strategy is yet another situation where someone takes two equivalent strategies and needlessly fabricates a new name for alternating back and forth between the two strategies. To grasp this, you need to understand that short puts and covered calls (same strike price and expiration) are synthetically equivalent strategies, meaning a similar P&L.

Is anyone else doing this for regular income? The problem with selling short puts and covered calls is that they have an asymmetric risk/reward. You have a modest profit potential while bearing all of the risk. In down markets, you'll own the stock and at some point, the underlying gets too low to sell any kind of decent premium without locking in a loss. The only way to overcome this is to have superior timing and selection (not many do).

As an extreme example, consider the SPY at $150 at the end of 2007. If you sold short puts or did a covered call, as the SPY dropped to the low 70's 14 months later, how well do you think that covered call writing would have worked?

AFAIC, selling short OTM puts should be done when you want to acquire a stock at a lower price and selling covered calls should be done when you want to sell a stock at a higher target sell price. IMHO, in general, a better choice for regular income (and in size) is a vertical spread (and the equivalent strategy of a long stock collar). While the reward is lower, it evens out the R/R and protects you from disasters. It's better risk management.

And yes, I have sold option premium for over 40 years. Back then, it was covered calls. By the mid 80's, I moved on to short puts. Ironically, the Friday before the crash of 1987 was option expiration. Every short put that I sold or rolled to that day was well ITM on Monday when the market dropped 22%. That day opened my eyes to the need for risk management.

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    I appreciate your response and personal experience that you included. I've been pretty successful with using trend analysis and following the tasty trade, high probability trade, strategies. I am concerned though about a big dip if I were to use this as 100% of my income. I haven't started doing spreads yet because I'm afraid of a margin account. Any advice? Commented Feb 4, 2021 at 15:47
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    You should be wary of selling lots of short puts. You should never sell more of them than stock you're willing to eat. A margin account is only a potential problem if you use margin borrowing. There is no borrowing with buying vertical spread and the margin requirement for selling the equivalent vertical spread would be the same dollar amount. IOW, buying the Mar 19th +95c/-100c bull vertical is the same as selling the -100p/+95p bull vertical. The advantage to the put spread is that if you're successful, both legs of the put spread expire worthless and you have less exit slippage. Commented Feb 4, 2021 at 16:02
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    Since you have experience doing this, on an average year, assuming there's not a 1987 event, are you able to give a ballpark idea of what a trader selling puts and calls can expect as a gross ROI percentage? Commented Feb 4, 2021 at 16:54
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    Awesome thank you. Yeah it's really hard to estimate which is why I'm hesitant to scale up. I'm currently at a 95% success rate and 58% roi from the start but I'm positive that's not going to continue. Without better data to support that it's worth it, it's hard to justify scaling up to a couple hundred thousand and worse, I'm not sure how long to collect data for haha. Thanks for all the info Commented Feb 4, 2021 at 17:17
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    Congrats on a 95% success rate and a 58% ROI. Sweet. As stated, estimates of long term return will vary. AFAIC, that estimate isn't that important. What I see of paramount importance is risk management and there is none built in with short puts and CCs, other than premium received and distance to strike (OTM short put). With verticals, if the stock tanks, you can roll the long puts down, lowering cost basis. I rode several 1,000+ large cap share positions down 1/2 to 2/3 last March and it didn't faze me. I wasn't happy but with the market down 35%, I was down maybe 7-8% at the worst point. Commented Feb 4, 2021 at 17:29

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