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Module 1 Quiz — Foundations of the Wheel

5 questions · study aid format (answers + rationales visible). Complete after Module 1.

Q1. What is the "cash-secured" part of a cash-secured put?

  1. You've paid cash upfront to open the position
  2. ✓ You've set aside enough cash to buy 100 shares at the strike if assigned
  3. You've deposited margin as collateral with the broker
  4. You've hedged the position with a protective option
Cash-secured means the collateral for potential assignment is real cash sitting in the account, not margin. That's what makes the position "safe" from margin calls.

Q2. If you sell a put at a $47 strike for $1.20 premium and get assigned, what's your effective cost basis per share?

  1. $47.00
  2. $48.20
  3. ✓ $45.80
  4. $1.20
Cost basis = strike minus all premium collected. $47 − $1.20 = $45.80. This is the number that matters, not what the broker shows.

Q3. Which of these is NOT one of the three profit paths in the wheel?

  1. Put expires worthless, keep the premium
  2. Get assigned, sell calls above cost basis, get called away at a gain
  3. ✓ Buy the shares outright and sell them for a directional gain
  4. Get assigned, hold through drawdown while collecting call premium
The wheel is a premium-selling strategy on stocks you'd own. Buying and selling for directional gains is a different (long-stock) strategy.

Q4. What's the practical minimum capital to responsibly run the wheel?

  1. $5,000
  2. $10,000
  3. ✓ $20,000
  4. $100,000
Below $20k you can't diversify across enough positions. One assignment ties up all your capital.

Q5. Which best describes the "options risk premium" edge that makes the wheel work?

  1. A guaranteed return option sellers earn regardless of market conditions
  2. ✓ A small, persistent excess in the premium option buyers pay vs. the outcomes those options are worth on average
  3. A rebate paid by the exchange for providing liquidity
  4. A tax advantage for options sellers
Options are priced to reflect potential outcomes. Buyers, on average, slightly overpay for the "insurance" nature of options. Sellers on quality names, over enough trades, harvest that small overpayment as their edge.