Wheel Module 2 — Selecting Candidates

Learn · Wheel · Step 3 of 5 · Learn home · Prev: Module 1 · Next: Module 3 Est. time: ~60–75 min

New terms (Module 2)

Term	Plain meaning
Liquidity	Enough buyers/sellers that you can enter and exit without huge price gaps
Open Interest (OI)	How many open contracts exist—more usually means easier trading
Bid / ask / mid	Bid = best buyer price · Ask = best seller price · Mid = midpoint (reference only, not your fill)
Bid–ask spread	Ask minus bid—wider spread = more cost to enter or exit
IV (implied volatility)	How much the market expects the stock to move—higher IV often means higher option premium
Delta	Rough guide to how much the option price moves with the stock—and how likely assignment feels
Days To Expiration (DTE)	How many days until the option expires—pick a default range and stick to it
Regime	The broader trend or volatility backdrop (grind up, range, stress)—context, not a forecast

Learning goals

After this module you can screen a ticker and reject it for clear reasons—not only because “the premium looks good.”

1. Rule #1 — Would you own the stock?

If getting assigned shares would panic you, do not sell the put. Ask yourself:

Would I hold 100+ shares if the price dropped 20–40%?
Do I understand the business enough to not panic-sell overnight?
Is this money I can leave tied up for months?

Premium is not a reason to ignore this.

2. Good company ≠ good wheel stock

A strong brand or story does not make a good wheel name.

Great company traits	Wheel-candidate traits
Innovative, popular, high growth narrative	Liquid options, manageable gap risk
“Everyone knows it”	Spreads tight enough to enter/exit
Exciting upside stories	You accept owning it at this strike

Example: TSLA can be a great trading vehicle and still be a poor wheel candidate for many accounts—wide moves, narrative gaps, and options behavior that can overwhelm casual income sizing. Practice: “I like the stock” is not the same as “I will sell a cash-secured put here.”

3. Can you trade it cleanly?

Check open interest (OI), volume, and bid–ask spread before any ticker. Why it matters:

Wide spreads tax every entry, roll, and close
Thin open interest (OI) → harder exits when you need them most
Poor liquidity turns a small mistake into large slippage

Practical bar: prefer names where front-month options have meaningful OI and spreads that are small relative to the credit you collect. On the Wheel page (covered in the execution step), sort the CSP table by Spread % and OI after you filter.

4. IV and premium — the core tension

Side of the tension	Meaning
Elevated IV → richer premium	Attractive for option sellers today
Elevated IV → riskier backdrop	Market expects larger moves; after assignment, stock risk can dominate

Do not treat rich premium as a green light. Ask: “If I own shares tomorrow, is this IV telling me the stock is calm—or stressed?” On BigDipperOptions: IV is part of the composite score—use score to compare strikes here first.
At your broker: confirm live IV and quotes before you sell. More context: Volatility Indicators. GEX context is covered in the execution step.

5. Delta and assignment probability

Delta on a short put is a rough assignment-probability proxy (not a guarantee).

Higher |delta| → more credit, higher chance of ending in shares
Lower |delta| → less credit, more “expire OTM” outcomes

Wheel thinking: higher-delta puts invite Phase B more often—so ownability and sizing must be stricter.

6. Pick a time window (days to expiration)

Style	DTE range	Trade-off
Weeklies	~5–14 days	Faster feedback, frequent credits; more check-ins
~15–30 days	Common wheel band	Balance of time decay and flexibility
Monthlies / longer	30+ days	Fewer decisions; capital tied up longer

Pick a default DTE band and break it only with a written reason (earnings, liquidity, etc.).

7. Strike selection framework

Work top-down:

Max price I’d pay for shares (hard cap)
Price / structure context (range, support—walls on the Wheel page in the execution step)
Delta / credit that still respects (1)
Liquidity at that strike

Never pick a strike only because “the credit looks nice.”

8. Earnings, dividends, and binary events

Earnings: IV crush vs gap risk—many wheel processes go flat into the print
Dividends: short calls can face early assignment risk around ex-div
Biotech / binary catalysts: can invalidate income assumptions in one session

Default for beginners: do not open a new put if earnings or a major event falls before expiry—unless your plan explicitly accepts assignment through that event.

9. Trend / regime awareness

Environment	Wheel research posture
Bullish grind	Puts may expire more often; watch FOMO on covered calls later
Sideways / range	Often friendliest for short premium if liquidity and events cooperate
Bearish / stress	Premium looks rich; assignment + continued downside can stack losses

Use Stock Price History and GEX/regime views on the platform as context, not prediction.

10. Size each stock small

Define a max % of wheel capital per ticker (and per correlated group). One oversized name that gaps down can:

Wipe months of premium
Force panic selling of shares
Freeze capital so you cannot rotate into better setups
Push you into revenge sizing on the next ticker

Prefer: many modest, liquid, ownable positions over one “hero” credit.

Cheat sheet (print this)

Would I own shares at this strike in a big drop?     NO → REJECT
Good company ≠ good wheel: is this a wheel name?     NO → REJECT
Enough OI and tight enough spread?                 NO → REJECT
IV rich because of stress/binary I won't hold?      YES → REJECT or wait
Delta matches how often I'm OK being assigned?       NO → adjust or REJECT
DTE fits how often I want to manage?               NO → adjust or REJECT
Earnings / div / binary inside the window?           YES → flat or REJECT
Regime compatible with my plan?                      NO → REJECT or size down
Size ≤ my per-ticker capital cap?                    NO → cut size or REJECT
Still interested after saying risks out loud?       NO → REJECT
        ↓
   Next — [Wheel Page Guide](/dashboard/wheel-page-guide)

Checkpoint

I rejected at least one famous name for a wheel reason
I can explain why higher option premium can mean a riskier stock if I get assigned shares
I wrote my per-stock size cap and default DTE band

Next: Module 3 — Executing with BigDipperOptions

​New terms (Module 2)

​Learning goals

​1. Rule #1 — Would you own the stock?

​2. Good company ≠ good wheel stock

​3. Can you trade it cleanly?

​4. IV and premium — the core tension

​5. Delta and assignment probability

​6. Pick a time window (days to expiration)

​7. Strike selection framework

​8. Earnings, dividends, and binary events

​9. Trend / regime awareness

​10. Size each stock small

​Cheat sheet (print this)

​Checkpoint