The math: true cost basis and annualized return
Brokers show each option leg on its own. To know whether a wheel cycle actually worked, measure the whole cycle, from the first put to the shares being called away.
1. Adjusted cost basis
adjusted basis = assignment strike − put premiums − call premiums − dividends received(all per share; include any premiums from puts that expired before you were finally assigned)
Example: sell a $50 put for $1.20 and get assigned. Sell three calls for $0.60, $0.55 and $0.50, and collect a $0.45 dividend. Adjusted basis = 50 − 1.20 − 1.65 − 0.45 = $46.70. That's your true breakeven.
2. Cycle return
cycle profit = (sale price − adjusted basis) × 100 × contracts − feescycle return = cycle profit ÷ (strike × 100 × contracts)If those shares are then called away at $52: profit = (52 − 46.70) × 100 = $530 on $5,000 of cash set aside, or 10.6%.
3. Annualize it
annualized return = cycle return × 365 ÷ days from first put sold to shares called awayIf that cycle took 120 days: 10.6% × 365 ÷ 120 ≈ 32% annualized. Annualizing lets you compare a quick cycle with a slow one fairly.
Don't hide the losses
If a stock falls well below your basis and you're still holding, the cycle isn't done. Track the unrealized loss next to your premium. Otherwise premium income can look great while the account shrinks.
Try the cost-basis calculator →
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