Picking the right strike price for cash-secured puts and covered calls is one of the most important decisions in the wheel strategy. Here is the framework used by experienced wheel traders:
For Cash-Secured Puts: Sell puts at a delta of 0.20-0.30. This represents roughly a 20-30% probability of being assigned. At this range, you balance premium income against a low-but-not-negligible assignment risk. You want to pick a strike price at a level where you are genuinely comfortable owning the stock — not just chasing premium.
For Covered Calls: Your absolute floor is your Adjusted Cost Basis. Never sell a covered call at a strike below your ACB. Beyond that, most wheel traders target a delta of 0.20-0.35 for CCs, aiming to collect premium while leaving room for the stock to recover. Selling an ATM or ITM CC is generally too aggressive unless you intentionally want to exit the position quickly.