The seven Wheel Strategy mistakes that quietly drain returns — oversizing, chasing high-IV junk, rolling blindly, selling calls below cost basis — and the fix for each.
Since we're only selling cash-secured puts, why would we not have enough cash to cover all our assigned puts? Wouldn't a 5% cash reserve be enough to cover commissions, fees and any other transactional costs? Do you have any worst-case examples to illustrate when a 20% buffer is needed to cover assignment costs?
You’re right that, mechanically, a properly cash-secured put should already be fully funded, so this is not about suddenly “not having enough cash” to take assignment.
The reserve is really about portfolio flexibility in bad markets.
Imagine a $100K account with five $20K CSPs open and essentially no cash left. Market sells off hard, multiple puts get assigned in the same week. You can cover everything, but now you’re 100% invested into a falling market with no dry powder when IV is finally high and opportunities improve.
That 20% buffer is there to prevent getting cornered.
It gives you room to roll if needed, add selectively to stronger names, take advantage of high-premium setups, or simply avoid feeling pressure to act when the tape gets ugly.
Could you run tighter - absolutely. If you’re conservative, diversified, and comfortable being fully invested through assignments, a smaller buffer may work. But for most people, the 20-30% reserve is less about commissions or assignment costs and more about giving yourself breathing room when several things go wrong at once.
Since we're only selling cash-secured puts, why would we not have enough cash to cover all our assigned puts? Wouldn't a 5% cash reserve be enough to cover commissions, fees and any other transactional costs? Do you have any worst-case examples to illustrate when a 20% buffer is needed to cover assignment costs?
Hi Jay,
You’re right that, mechanically, a properly cash-secured put should already be fully funded, so this is not about suddenly “not having enough cash” to take assignment.
The reserve is really about portfolio flexibility in bad markets.
Imagine a $100K account with five $20K CSPs open and essentially no cash left. Market sells off hard, multiple puts get assigned in the same week. You can cover everything, but now you’re 100% invested into a falling market with no dry powder when IV is finally high and opportunities improve.
That 20% buffer is there to prevent getting cornered.
It gives you room to roll if needed, add selectively to stronger names, take advantage of high-premium setups, or simply avoid feeling pressure to act when the tape gets ugly.
Could you run tighter - absolutely. If you’re conservative, diversified, and comfortable being fully invested through assignments, a smaller buffer may work. But for most people, the 20-30% reserve is less about commissions or assignment costs and more about giving yourself breathing room when several things go wrong at once.
B