The strike price (also called the exercise price) is the fixed price at which an options contract can be executed. For the wheel strategy, it is the pivot point of the entire trade.
For Cash-Secured Puts: The strike price is the price at which you agree to buy 100 shares of the stock. If the stock falls below this price at expiration, you will be assigned those shares at the strike — regardless of how far the stock has fallen.
For Covered Calls: The strike price is the price at which you agree to sell your 100 shares. If the stock rises above this price at expiration, your shares are called away at the strike price.
In-the-Money (ITM) vs. Out-of-the-Money (OTM): A put is ITM when the stock's current price is below the strike price. A call is ITM when the stock's current price is above the strike price. Wheel traders almost exclusively sell OTM options for maximum extrinsic value capture.
Examples of Strike Price in Action
- 1Selling a $100 strike put when the stock is trading at $105 — the strike is OTM by $5.
- 2After assignment at $100, selling a $105 CC when ACB is $98 — the trader profits $7 per share if called away.
- 3A $200 strike covered call will result in selling shares at $200 regardless of whether the stock is at $210 or $250 on expiration.