When a short option is exercised against you. On a short put, assignment means you must buy 100 shares × contracts at the strike price. On a short call, assignment means your shares get sold at the strike (also called "called away"). In the wheel, assignment on a short put is the plan — it's how you enter share ownership at a discount.
ATMat-the-money
An option whose strike is at or very near the underlying stock's current price. ATM options have the highest extrinsic value and the highest gamma (fastest change in delta). Wheel traders generally avoid selling ATM puts because assignment probability is ~50%.
B
Bid / Ask
The bid is the highest price a buyer will pay for the option; the ask is the lowest price a seller will accept. As a put seller, you sell to buyers at (or near) the bid. Good practice: place limit orders at the midpoint (bid + ask ÷ 2) — often fills within seconds and captures better pricing than a market order.
Break-Even
The underlying stock price at which your position has zero profit or loss. For a short cash-secured put, break-even = strike − premium collected. Example: a $47 strike put sold for $1.20 premium has a break-even of $45.80 on the shares if assigned.
C
Call Option
A contract giving the buyer the right (not obligation) to buy 100 shares of the underlying at the strike price on or before expiration. In the wheel, you sell calls against shares you already own (covered calls) — you're paid premium in exchange for giving someone the right to buy your shares at the strike.
Called Away
When your short covered call is exercised and your shares are sold at the strike. In the wheel, this closes the cycle — capital is freed and returns to Leg 1 (sell cash-secured put). If the call was above your cost basis, being called away is a profit event.
Cash-Secured Put (CSP)
Selling a put option while setting aside enough cash to buy 100 shares × contracts at the strike if assigned. The "cash-secured" part = no margin, no leverage. This is the entry leg of the wheel strategy. Full walkthrough: Cash-Secured Puts Explained.
Contract
The standard unit of options trading. One contract = 100 shares of the underlying. If a put has a $1.20 bid, selling 1 contract earns you $1.20 × 100 = $120. Everything in options is priced per share but transacted per contract.
Covered Call
Selling a call option against 100 shares × contracts you already own. In the wheel, this is Leg 2 — you sell calls after being assigned to generate additional premium on the shares. Strike is usually set above your true cost basis so being called away is profitable.
D
Delta
The rate at which an option's price changes per $1 move in the underlying. For wheel selection purposes, delta on a short put approximates the probability of assignment. A -0.25 delta put has roughly a 25% chance of being ITM at expiration. Omega default range: 0.20 to 0.30.
DTEdays to expiration
Number of calendar days until the option expires. Omega default: 30 to 45 DTE — the sweet spot for theta decay + roll flexibility. Shorter DTE = smaller absolute premium and higher gamma risk. Longer DTE = capital locked up too long.
E
Expiration
The date on which the option contract terminates. Options that are ITM at expiration are typically auto-exercised (assignment happens). Options that are OTM expire worthless — the seller keeps the entire premium. Most wheel positions expire on the third Friday of the month (monthlies) or weekly Fridays.
Extrinsic Value
The portion of an option's price that isn't intrinsic value (i.e., the "time value" and "volatility value"). This is what decays as expiration approaches. Wheel sellers profit from extrinsic value decay.
G
Gamma
The rate of change of delta per $1 move in the underlying. Gamma is highest for near-ATM options close to expiration — meaning small stock moves cause big option price swings. This is why wheel traders generally close positions early (50% rule) rather than hold to expiration.
I
Implied Volatility (IV)
The market's expectation of the underlying stock's future price movement, expressed as an annualized percentage. High IV = high premium AND high perceived risk. Wheel traders want quality names with moderate IV — premium worth capturing without extreme assignment risk.
ITMin-the-money
An option that has intrinsic value. A put is ITM if the underlying is below the strike (put has value). A call is ITM if the underlying is above the strike. ITM options at expiration are typically auto-exercised.
IV Rank
A percentile ranking of current IV relative to the past 52 weeks. IV Rank of 50 means current IV is at the midpoint of its 1-year range. Higher IV Rank on quality names = better wheel opportunities.
L
Limit Order
An order to buy or sell at a specific price (or better). For wheel entries, always use limit orders at the midpoint of the bid-ask spread — never market orders on options, which routinely fill 10-30% worse than midpoint.
M
Margin
Borrowed money from your broker used to enter larger positions. In the wheel, we deliberately DON'T use margin — every put is cash-secured. Using margin turns the wheel into a leveraged bet that can force closure at the worst possible moment.
Midpoint
The average of the bid and ask prices. Best default for limit orders. If a put has bid $1.20 / ask $1.30, the midpoint is $1.25 — that's where you place your limit sell-to-open.
O
Options Approval Level
Brokers assign tiers based on complexity. The wheel requires Level 2 (cash-secured puts and covered calls). Don't request Level 3 or 4 unless you understand spreads and naked options — asking for higher levels just complicates your application.
OTMout-of-the-money
An option that has no intrinsic value. A put is OTM if the underlying is above the strike. A call is OTM if the underlying is below the strike. OTM options at expiration expire worthless. Wheel traders sell OTM puts — hoping they stay OTM.
P
Premium
The price of the option, per share. Multiplied by 100 to get dollar amount per contract. When you sell an option, you collect the premium upfront. This is the wheel's income source.
Put Option
A contract giving the buyer the right (not obligation) to sell 100 shares of the underlying at the strike price on or before expiration. In the wheel, you sell puts (cash-secured) — you're paid premium in exchange for the obligation to buy shares at the strike if the buyer exercises.
Put-Call Parity
The financial-math relationship showing that a cash-secured put and a covered call on the same underlying at the same strike and expiration have structurally equivalent payoffs. Explanation: CC vs CSP article.
R
Rolling
Closing a current option position and simultaneously opening a similar new position with a later expiration and often a different strike. Rolling "out" = further expiration. Rolling "down" = lower strike (for puts). Only roll for a net credit AND to a strike you'd still be happy owning at.
S
Strike Price
The price at which the option can be exercised — the price you'd pay (put assignment) or receive (call assignment) per share × 100 × contracts. In the wheel, always pick strikes you'd be genuinely happy to transact at.
STOsell-to-open
The order type for opening a short option position (i.e., collecting premium). Cash-secured puts and covered calls are both opened with STO orders.
T
Theta
The rate at which an option's price decays per day, all else equal. Wheel sellers profit from theta decay. Theta accelerates in the 30-45 DTE window — which is exactly why Omega defaults to that DTE range for opening trades.
True Cost Basis
Your actual out-of-pocket cost per share after all premium collected. For assigned shares: strike − total premium collected on the trade (including original put premium + any roll credits + any covered call premium). The broker shows you the strike as "cost basis"; the real number is lower. Use the tracker tool to compute it accurately.
V
VIX
The CBOE Volatility Index — sometimes called the market's "fear gauge." Higher VIX = higher IV on individual stocks generally = better wheel opportunities but also more assignment risk. VIX above 25 usually means a market shock is in progress.
Vega
The rate at which an option's price changes per 1% change in implied volatility. Not critical for basic wheel management but useful to know: if you sell a put and IV spikes, the put's value increases even if the stock hasn't moved.
W
Wheel Strategy
The two-leg options-income strategy: sell cash-secured puts on stocks you'd genuinely be glad to own → if assigned, sell covered calls → if called away, back to Leg 1. Repeat. Full explanation: What Is The Wheel Strategy?
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