Lesson 2 of 5

Buying vs Selling Options

Every options trade has a buyer and a seller. This matters more than most people realize, because the two sides have completely different odds. As a wheel trader, you're always the seller. And that's exactly where you want to be.

The Buyer's Perspective

Buyers pay premium upfront hoping for a big move. If the stock doesn't move fast enough or far enough, they lose. Every single day, the option bleeds value from time decay. It's like buying a lottery ticket that gets cheaper every day you hold it. Studies show roughly 60-80% of options expire worthless. That tells you everything about being on the buyer's side.

The Seller's Perspective

Sellers collect cash upfront and time works FOR them. Every day that passes, the option you sold gets cheaper. You can profit when the stock goes up, stays flat, or even drops a little -- as long as it doesn't blow past your strike. The tradeoff? If the stock really tanks, you're on the hook. But in the wheel, we only sell puts on stocks we actually want to own, so assignment isn't a crisis -- it's the plan.

Buying Options

+Pay premium upfront
+Limited loss (premium paid)
+Need a big stock move to profit
+Time decay works against you every day
+Lower probability of profit (~20-40%)

Selling Options

–Collect premium upfront -- cash hits your account immediately
–Profit is capped at the premium received
–Profit when stock stays flat or moves in your favor
–Time decay works FOR you every day
–Higher probability of profit (~60-80%)

Why Wheel Traders Sell

The wheel is built entirely on selling. You sell puts to get paid while waiting to buy stock at a discount. You sell calls to get paid while waiting to sell stock at a premium. Time decay is working for you on every single trade. That's the edge.

Seller Risk Is Real

I'm not going to sugarcoat it -- selling puts means you could be buying a stock that just dropped 20%. This happened to me with SOFI in 2022. The key is: only sell puts on stocks you genuinely want to own at prices you think are fair. If you wouldn't buy the stock at the strike price without the premium, don't sell the put.

Sellers have a statistical edge because time decay eats away at option value every single day, including weekends.
Sellers can profit in three scenarios: stock goes up, stock stays flat, or stock drops a little. Buyers need ONE specific scenario.
Buyers need the stock to move enough to overcome the premium paid. If you bought a $5 call, the stock needs to go up more than $5 just to break even.
The wheel uses selling exclusively, turning time decay into a consistent income stream. I grew my account from $6K to $231K doing exactly this.

The short version

•Sellers collect premium and benefit from time decay. Buyers pay premium and fight against it.
•Sellers profit more often but accept larger potential losses on individual trades -- risk management is everything.
•The wheel is a premium-selling strategy. You are always the seller.
•Never sell puts on stocks you wouldn't want to own at the strike price. That's the golden rule.

Quick Check

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Who benefits from time decay (theta)?

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