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Module 2 Quiz — Stock Selection

5 questions · study aid format (answers + rationales visible). Complete after Module 2.

Q1. What is the single most important stock selection rule in the wheel?

  1. ✓ Only wheel companies you'd be genuinely glad to own for 12+ months at the strike you sold at
  2. Always pick stocks with the highest implied volatility for maximum premium
  3. Only wheel stocks that are up in the past 6 months
  4. Only wheel dividend aristocrats
Assignment on a great business at a good price is fine; assignment on a bad business at any price is ruinous.

Q2. Which is NOT one of the 5 Omega quality filters?

  1. Market cap over $10 billion
  2. Positive free cash flow three years running
  3. Business you understand in 60 seconds
  4. ✓ 20%+ annual revenue growth
  5. No binary event risk in your DTE window
Revenue growth is nice but not a wheel-selection filter. Fast growth often correlates with high IV and story-stock risk, which are the OPPOSITE of what the wheel wants.

Q3. Why do we prefer free cash flow over GAAP earnings?

  1. FCF is calculated more frequently
  2. FCF is required by the SEC and earnings isn't
  3. ✓ FCF is the number that's hardest to manipulate with accounting choices
  4. FCF includes stock-based compensation which earnings doesn't
Revenue, EBITDA, and adjusted earnings can be moved around with accounting. Cash coming in the door is cash coming in the door.

Q4. Why should you NOT wheel a stock with an earnings announcement inside your DTE window?

  1. ✓ Earnings can cause 20%+ single-day moves — that's assignment risk the wheel isn't designed for
  2. IRS regulations prohibit it
  3. Your broker will automatically close the trade
  4. The premium becomes unavailable during earnings weeks
Binary events introduce a specific kind of risk (large one-day moves) that's different from ordinary market noise. Wait until after earnings to re-open the trade.

Q5. How many stocks should be on a properly built wheel watchlist?

  1. 3–5 for focus
  2. ✓ 10–15 across multiple sectors
  3. 25–50 for maximum diversification
  4. All stocks in the S&P 500
Fewer than 10 = insufficient diversification. More than 15 = you can't actually track them. 10–15 across 4–5 sectors is the sweet spot.