The identical risk graph
A cash-secured short put at the $95 strike collecting $2 has the same P&L at expiration as buying 100 shares at $95 and selling a covered call at $95 collecting $2. Both max profit at $2 (premium), both break even at $93, both lose dollar-for-dollar below $93. This is not a coincidence — it is a mathematical identity called put-call parity.
Capital efficiency advantage: short puts
A cash-secured put on a $100 stock at the $95 strike requires $9,500 in buying power ($95 × 100 shares). A covered call requires $10,000 (buy 100 shares at $100) minus the call premium. Short puts tie up less capital because you are not buying shares — you are just reserving cash in case of assignment. On margin, the difference is even larger: short puts may require only 20% of notional value.
When to use each
Use short puts when: you want to enter a stock position at a lower price, you want capital efficiency, or you are starting the wheel strategy. Use covered calls when: you already own shares and want to generate income while waiting to sell, you want to reduce cost basis on an existing position, or you have been assigned from a short put and are now in phase two of the wheel.
The wheel connects both
The wheel strategy is the natural combination: sell cash-secured puts until assigned, then sell covered calls on the shares until called away. This creates a continuous income loop. VolRadar's Wheel Calculator evaluates both phases, showing expected returns for the full put-to-call-to-put cycle based on current IV and VRP conditions.