Delta targeting
Deltais the option chain's estimate of how likely a strike is to finish in-the-money at expiration. Roughly: |delta| ≈ probability of ITM. So a −0.30 put has about a 30% chance of being assigned.
For a cash-secured put (CSP), target −0.30. For a covered call against shares you already hold, target +0.30. Same odds, mirrored side — that symmetry is why the Wheel stays on the rails.
| Delta | ~Prob ITM | Reading |
|---|---|---|
| −0.20 | ~20% | Far OTM. Small premium, low assignment risk — best when IV rank is low. |
| −0.30 | ~30% | The sweet spot. Best premium-per-day vs. assignment odds for CSPs, and the mirror for covered calls. |
| −0.40 | ~40% | Closer to the money. Richer premium but assignment is now a coin toss. |
Premium-to-collateral tradeoffs
Yield is what you actually get paid — premium ÷ cash secured. A $1.85 premium on a $220 CSP is a 0.84% return in 35 days — annualised, that's roughly 8–9%. The far-OTM strike looks safer but pays a fraction of that.
Breakeven is the line in the sand. For a CSP: breakeven = strike − premium. If you're assigned at $220 keeping the $1.85, your effective cost basis is $218.15 instead of $220. For a covered call: breakeven = strike + premium.
- Strike price
- $50 per share
- Premium received
- $1.20 per share × 100 = $120
- Cash collateral
- 100 × $50 = $5,000
- Breakeven if assigned
- $50 − $1.20 = $48.80 per share
$4,880 effective cost for 100 shares after the premium
Stock at $52 at expiration
The $50 put is out of the money and expires worthless. The seller keeps the $120 premium, and the $5,000 cash reserve is released.
Stock at $45 at expiration
Assignment buys 100 shares for $5,000 at the $50 strike. Keeping the $120 premium makes the effective basis $48.80 per share ($4,880 total). At $45, the shares are worth $4,500, an unrealized loss of $380 before fees.
Bid-ask caveat. Liquid names carry $0.05–$0.10 spreads on a 35-DTE option. Anything wider than roughly 5%of the mid price is a warning sign — you'll give back a third of the premium to slippage alone.
IV-driven strike adjustments
IV rank tells you whether option premiums are rich or cheap relative to the last year. It is the dial you turn to decide whether to sell closer to the money or further out.
- High IV rank (> 50%) — premiums are inflated. Sell closer to the spot (target
delta ≈ −0.35) and capture the rich premium. Higher assignment odds are the price of admission. - Low IV rank (< 25%) — premiums are historically cheap. Sell further out-of-the-money (target
delta ≈ −0.25) and accept smaller premium for safer assignment risk.
This is the lever the screener pulls behind the scenes — ranking tickers by IV rank first, then nudging the strike window per name to match the regime.
Worked examples
Three names, three volatility profiles — same ~0.30 delta target, different absolute strikes and premiums. Illustrative numbers only — verify against a live quote before trading.
- Spot$230
- Strike$220
- Premium$1.85
- Delta-0.30
- Yield1.7%
- Breakeven$218.15
Illustrative numbers only — verify against a live quote before trading.
- Spot$590
- Strike$575
- Premium$2.10
- Delta-0.30
- Yield1.6%
- Breakeven$572.90
Illustrative numbers only — verify against a live quote before trading.
- Spot$145
- Strike$135
- Premium$2.40
- Delta-0.30
- Yield2.1%
- Breakeven$132.60
Illustrative numbers only — verify against a live quote before trading.
Once you've been assigned and the position goes off-script, head to the Adjustment playbook → for the three highest-frequency roll / restart moves.
Knowledge check
Cash-secured puts: quick check
Use these illustrative standard-contract examples to review how strike, premium, and collateral fit together.