The Wheel Strategy Glossary: Every Term You'll Actually Use

The wheel strategy has its own vocabulary — some terms are standard options terminology, others are wheel-specific. This glossary covers every term you'll encounter in wheel-strategy content, with plain-English definitions. Use as a reference; bookmark for quick lookup.

1. Options basics

• Call option: gives the buyer the right (not obligation) to BUY 100 shares at the strike price by expiration. Wheelers sell calls in the CC leg.
• Put option: gives the buyer the right (not obligation) to SELL 100 shares at the strike price by expiration. Wheelers sell puts in the entry leg.
• Strike price: the pre-agreed price at which the option can be exercised.
• Expiration date: the date the option expires. Standard expirations are monthly (3rd Friday); weeklies are every Friday.
• Premium: the price paid by the buyer to the seller for the option. Wheelers collect premium.
• Contract: one option contract = right to 100 shares.
• Exercise: using the option — for put buyer, selling shares at strike; for call buyer, buying shares at strike.
• Assignment: when the option seller is required to fulfill the contract (buy shares if short put, sell shares if short call).

2. Moneyness (ITM, ATM, OTM)

• ITM (In-The-Money): option has intrinsic value. Put ITM = stock below strike. Call ITM = stock above strike.
• ATM (At-The-Money): stock price equals strike price approximately.
• OTM (Out-of-The-Money): option has no intrinsic value (only time value). Put OTM = stock above strike. Call OTM = stock below strike.
• Intrinsic value: the "in the money" portion — for ITM put, strike minus stock price.
• Time value: the portion of premium above intrinsic value — pure time + volatility premium.

3. The Greeks

• Delta: rate of change of option value vs stock price. For puts: 0 to -1 (or expressed as 0-1). Wheelers use delta as primary strike selector — target 0.20-0.25 for wheel puts.
• Theta: daily rate of time decay. Negative for option buyers, positive (favorable) for option sellers/wheelers.
• Vega: sensitivity to implied volatility changes. Wheelers benefit when IV drops (short vega).
• Gamma: rate of change of delta vs stock price. Grows dramatically near expiration — why 7-DTE options are risky.
• Rho: sensitivity to interest rate changes. Usually ignorable for wheel timeframes.

4. Wheel-specific terms

• The Wheel: systematic income strategy: sell cash-secured puts → get assigned → sell covered calls → get called away → repeat.
• Wheel cycle: one complete rotation of the wheel (put → assignment → CC → called away).
• Cash-secured put (CSP): short put with cash set aside to cover potential assignment.
• Covered call (CC): short call against 100 shares of the underlying.
• Cost basis: effective price paid for shares. For wheel: strike - premium collected.
• Economic cost basis: true break-even including all premium collected during the position's life.
• Rescue cycle: systematic CC playbook for recovering deep drawdown positions (25%+ underwater).
• Roll: closing existing option + opening new option (usually further out in time and/or lower strike).
• 50% rule: close winning wheel positions at 50% max profit to redeploy capital.
• Poor Man's Wheel (PMCC-based wheel): using LEAPS call as stock substitute + selling short CCs against it.

5. Order types + execution

• Limit order: executes only at specified price or better. Wheelers use exclusively (never market orders on options).
• Market order: executes at whatever price market provides. NEVER use on options.
• Day order: expires end of trading day if unfilled.
• GTC (Good Til Canceled): stays active until filled or canceled. Wheelers use for 50% profit close orders.
• Mid-price: (bid + ask) / 2. Sweet spot for limit order pricing.
• Multi-leg order: executes multiple options simultaneously (used for rolls).
• Sell to open (STO): creating a new short option position.
• Buy to close (BTC): closing an existing short option position.

6. Volatility terms

• Implied Volatility (IV): market's expectation of future stock volatility, priced into options. Higher IV = more expensive options = more premium for sellers.
• Historical Volatility (HV): actual observed volatility over past period. Backward-looking.
• IV Rank: where current IV sits in past 52-week range (0-100). IV rank 60+ = elevated premium; time to sell.
• IV Percentile: percentage of past days with lower IV. Similar to IV rank but percentile-based.
• VIX: the "fear index" — implied volatility of S&P 500 options. Rises during market stress.
• IV Crush: sudden drop in IV, typically after earnings. Benefits option sellers/wheelers.
• Vega: option sensitivity to IV changes (see Greeks).

7. Position management terms

• DTE (Days to Expiration): calendar days until option expires. Wheel default: 30-45 DTE.
• Assignment risk: probability of being assigned (approximately equals delta).
• Early assignment: being assigned before expiration (rare on puts, more common on CCs before ex-dividend).
• Roll for credit: rolling with net premium collection (always preferred).
• Roll for debit: rolling requiring net premium payment (NEVER do this).
• Roll out: same strike, later expiration.
• Roll down and out: lower strike (for puts) + later expiration.
• Roll up and out: higher strike (for CCs) + later expiration.
• Legging in/out: executing multi-leg positions one leg at a time (risky vs multi-leg orders).

8. Account + tax terms

• Options Level 1: covered calls only. Insufficient for wheel.
• Options Level 2: covered calls + cash-secured puts + long options. Required for wheel.
• Options Level 3: defined-risk spreads (credit spreads, iron condors).
• Options Level 4: naked/uncovered options + portfolio margin.
• Portfolio Margin: risk-based margin (available at $100k+ taxable accounts). Reduces buying power requirements.
• Cash-secured: having enough cash to cover full assignment (strike × 100).
• Wash sale: IRS rule disallowing loss claim if same/substantially identical security purchased within 30 days.
• Short-term capital gain: gain on position held less than 1 year. Taxed as ordinary income. All wheel CC/put premium.
• Long-term capital gain: gain on position held 1+ year. Taxed at preferential rates. Only relevant on shares held long-term after assignment.
• Section 1256 contracts: broad-based index options (SPX, RUT) taxed 60% LTCG + 40% STCG regardless of holding period. Different from ETF options (SPY) which are standard.

9. Next steps

1. Bookmark this glossary for quick reference
2. Reference during any confusion — options vocabulary is precise
3. Practice using terms correctly in trade journal entries
4. Share with wheel-curious friends — helps onboarding

For real weekly wheel trades I run using precise terminology, the Omega Membership shares the trade plan. Or grab the free Starter Kit.