The wheel, stated plainly

The wheel is a procedure more than a strategy. Sell a cash-secured put on a stock. If it expires, sell another. If you're assigned, you own 100 shares; sell a covered call against them. If the call expires, sell another. If the shares are called away, go back to selling puts. Every step collects premium, and drawn as a diagram the loop looks like a machine that pays out at each turn.

What it is underneath

Strip away the mechanics and the wheel is a long stock position with a strict entry rule, a strict exit rule, and premium income along the way. You are always either about to own the stock or currently owning it. If the stock goes up over the year, you'll do fine, though less well than if you'd just held it, because the calls kept selling the upside. If it goes sideways, you'll do well, because premium is most of the return. If it falls, you'll own it all the way down, and the premium will show itself for what it is: a small offset against a large loss.

Where the loop closes, and where it doesn't

The loop closes cleanly in a stock that oscillates: assigned at $45, called away at $50, back to puts. It fails in a stock that trends down. Assigned at $45 with the stock at $38, the covered-call step asks you to sell a call at a strike where you'd be content to part with the shares. The $45 call pays almost nothing. The $40 call pays something but sells the shares at a $500 loss. Most people then pick the $45 call, collect $15, and wait. That waiting is the wheel's real character: a long stretch of holding a losing position while the premium trickles in.

It also fails, more quietly, in a stock that trends up. Called away at $50 with the stock at $58, the next put you'd sell is the $55, with the stock $8 above where you were last assigned. The wheel never gets you back in at the old price. Over a rising year the sequence of puts and calls captures a fraction of the gain.

The premium total

Wheel traders like to track a running "premium collected" figure. Over a year on one stock it might read $2,400. If the shares you're holding are down $3,100, the position is down $700, and the number on the spreadsheet is the reason it doesn't feel that way. Premium reduces the cost basis of the shares; it doesn't exist separately from them. Track the basis, and track the position's total return including the shares' current price. That one figure says whether the wheel is working.

Running it well

Pick stocks you'd hold through a 30% drawdown, because at some point you will. Prefer names whose implied volatility is high relative to their own history without being high for a specific reason. Keep the put strike where the breakeven is a price you'd buy at even without the premium. Sell calls at strikes above your net cost basis, not below it, and accept smaller credits when that means going further out. And size it as though the assignment will happen, because in the wheel it isn't a risk. It's the plan.