Best ETFs for the Wheel Strategy in 2025

Published on December 18, 2024

If you're running the wheel strategy and looking to add diversification to your premium collection, ETFs might be exactly what you need. While most wheel traders start with individual stocks, using ETFs can give you exposure to entire sectors or indexes while still generating consistent premium income.

Why Add ETFs to Your Wheel Strategy?

This is pretty straightforward - diversification. When you run the wheel on individual stocks, you need to own enough different positions to protect yourself if one company has bad news or disappointing earnings. ETFs do a lot of this diversification work for you right from the start.

Remember though - just because an ETF gives you diversification doesn't automatically make it a good wheel candidate. You still need to find the right balance of premium, risk, and quality. Let's look at what makes an ETF worth considering for your wheel strategy.

What Makes an ETF Good for the Wheel Strategy?

Here's what I look for when evaluating ETFs for the wheel:

High Trading Volume

You need enough option volume to get in and out of positions easily. Look for ETFs with at least 1,000 option contracts traded daily. The last thing you want is to get stuck in a position you can't exit because of low liquidity.

Moderate Volatility

You want enough volatility to generate decent premiums, but not so much that you're just gambling. I typically look for implied volatility between 20-40%. You can always adjust your delta to control risk based on market conditions.

Clear Investment Strategy

If you can't explain what the ETF tracks in one sentence, it's probably not a good wheel candidate. Stay away from complex derivative products or highly leveraged funds unless you really know what you're doing.

Quality Holdings

Look at what's actually in the ETF. A basket of sketchy small-caps is still sketchy, even with diversification. Stick to ETFs holding quality companies you wouldn't mind owning for the long term.

How to Find ETFs for the Wheel Strategy

There is no shortage of good lists of ETFs available on the internet, ETFdb.com is one of them. But even when you narrow down your research to a list of ETFs you're comfortable running the wheel on, you end up right back at the same problem you do with running the wheel on individual stocks - how do I best allocate my available capital to maximize my return (premium) while properly managing risk?

This is where the Premium Pirates Wheel Strategy Screener comes in. First off, it's the only screener you can find anywhere that is designed exclusively for the wheel strategy, designed and built by wheel traders. If you have used our Wheel Screener in the past, you know you can limit your scans to a watchlist. If you haven't used our Wheel Screener yet, you can try it free for 14 days and see for yourself.

I've done the leg work for you and created ready-to-import files for our Watchlists that include all of the major ETFs and another file for leveraged ETFs. I'll update these regularly. You can download the files here:

Here's how to use them:

  1. Log into Premium Pirates and select "Create a Watchlist"
  2. Give your watchlist a name
  3. Click the "import" button and select the file you just downloaded
  4. Head over to the Wheel Strategy Screener and limit your scan to your new watchlist

The settings I like to use for my ETF scans are:

  • 2% minimum return
  • Cash-secured puts only
  • Delta between .02 and .04 (I adjust based on market conditions)
  • Filters for volume and bid-ask spread to ensure liquidity
  • Strike price limits to manage position sizing
ETF Wheel Strategy Screener Settings

You don't have to worry about calculating fair value on ETFs like you do individual stocks you run the wheel strategy on.

At the time of writing, here's what the Wheel Strategy Screener shows me:

ETF Wheel Strategy Scanner Results

Right off the bat the GDX ETF expiration on March 21 at the $34 strike is appealing. Here's the daily chart over the last several months:

GDX ETF Price Chart

I can, and do, run the wheel strategy on some of the holdings in the ETF. IThe IV is 34% and the delta is right at -0.3. Its IV Percentile is 30%, meaning that over the last year, only 30% of the days had an IV lower than it is currently. Even with all that, I can still earn a 3.9% return on this position. The margin of safety isn't terribly great, it's currently trading at ~$36. Nevertheless, this is just one of countless examples of how you can find the absolute best premiums on ETFs to run the wheel strategy and maximize your returns.

When Should You Use Leveraged ETFs for the Wheel?

There are occasions when using a leveraged ETF for the wheel strategy might be appealing because of the share price. For example, at the time of writing TQQQ is trading at $93.15, it is a 3x leveraged instrument of QQQ which is trading at $537.93. To open a single at-the-money contract on QQQ would require almost $54,000 to "secure" the put, whereas a single at the money contract of TQQQ would only require $9,321 to cover it.

This gives me exposure to the same holdings and diversification, but at a much higher risk obviously. Now, I can use the delta filters in the Wheel Screener to hunt for high odds contracts, such as look at max delta of -.2 which gives the contract an 80% chance of expiring worthless (which you typically want as the seller). But a leveraged asset can move against me quickly and put me more underwater than I want to be, tying up capital for a long time.

It's a risk reward balance. Personally, I would only consider opening a CSP on TQQQ if the overall market sentiment were well into the Fear side of the index meaning that prices are low and everything is "on sale." This is still risky and it doesn't mean that I do this often or that you should too, this is just an example of when I might consider a leveraged ETF like TQQQ.

What ETFs Do I Like for the Wheel in 2025?

Here are a few that might be worth looking at:

GDX

As I mentioned earlier, this has some nice premiums for March and beyond. The strike price is friendly enough for a moderately sized portfolio to open a few contracts without risk of being overindexed in this ETF.

GDX ETF Wheel Strategy Example

XLE

The strike price is higher than GDX, so you would need a decent size portfolio to run the wheel on this one, but not unreasonable. Premiums are good and it's an old and well-established ETF.

XLE ETF Wheel Strategy Example

VNQ

Again it has a higher strike price, but still below $100. The fund has been open since 2004 and it is stable. The annualized returns aren't great, but there are a few contracts you may be able to run a wheel campaign on.

VNQ ETF Wheel Strategy Example

SPYG

I like this ETF for the Wheel because it is currently trading at $91 versus SPY trading at $606 and it gives you exposure to similar holdings. My portfolio isn't large enough to allocate $60,600 to secure a single contract on SPY, but I can allocate the cash required for SPYG. Annualized returns aren't great, but if I can avoid getting assigned on CSPs, I can make a good campaign out of this for 2025.

SPYG ETF Wheel Strategy Example

Ready to Find the Best ETF Opportunities?

Finding ETFs with the right balance of premium and risk is much easier with the right tools. You can try the Premium Pirates Wheel Strategy screener free for 14 days and see for yourself how quickly you can identify the highest-premium opportunities in the market. All the examples in this article were found using our scanner - imagine what opportunities you might find for your own wheel strategy campaigns.