I have taken the Original Uncle Tony Rihan Cost Basis Reduction strategy of The SPY Wheel, which sells SPY puts 50 delta At The Money, and have compared it to selling puts at 25 delta and 10 delta Out of the Money. Here is the Original Uncle Tony Video – How to Beat the S&P 500: Hedge Fund Secrets

Current Market Dynamics

• SPY Current Price: $740.00
• Time Horizon: 58 Days to Expiration (DTE)
• 50 Delta (ATM): $740 Strike | Premium: $17.22 ($1,722 collected)
• 25 Delta (OTM): $707 Strike | Premium: $8.36 ($836 collected)
• 10 Delta (Deep OTM): $660 Strike | Premium: $3.42 ($342 collected)

1. Strategy Overview

The core premise for the Wheel Strategy revolves entirely around Cost Basis Reduction. Instead of buying 100 shares of SPY outright at the top of the market for $74,000, you sell put premium to mathematically force down your break-even point. Every dollar collected acts like rent, permanently reducing the net cost of the asset.

By introducing the 10 Delta, you are shifting from an aggressive income strategy toward a highly defensive yield strategy that acts like a heavily subsidized limit order.

Here is the exact capital efficiency and velocity of money across the three tiers:

• 50 Delta (The Aggressor): $1,722 collected on $74,000 of risk yields a 2.32% absolute return in 58 days.$$\text{Annualized} = 2.32\% \times \left(\frac{365}{58}\right) \approx 14.6\%$$
• 25 Delta (The Balancer): $836 collected on $70,700 of risk yields a 1.18% absolute return in 58 days.$$\text{Annualized} = 1.18\% \times \left(\frac{365}{58}\right) \approx 7.4\%$$
• 10 Delta (The Fortress): $342 collected on $66,000 of risk yields a 0.51% absolute return in 58 days.$$\text{Annualized} = 0.51\% \times \left(\frac{365}{58}\right) \approx 3.2\%$$

2. Phase 1: The Entry (Selling the Put)

The 50 Delta (ATM) Approach: Maximum Premium

You want aggressive income and are completely willing to take ownership of SPY at today’s exact market price.

• Mechanics: Sell the $740 Strike Put.
• The Math: Your strike is $740, but the $17.22 premium instantly drops your true break-even to $722.78.
• The 21-Day Trigger: In exactly 37 days, you will evaluate this trade. If you can buy it back for 50% profit ($8.61), you close it early and redeploy the capital.

The 25 Delta (OTM) Approach: The Structural Buffer

You demand a significant market pullback before taking assignment. You accept a lower annualized return (7.4%) in exchange for structural crash insurance.

• Mechanics: Sell the $707 Strike Put.
• The Math: Your strike is $707, and the $8.36 premium drops your true break-even down to $698.64.
• The Outcome: You sacrifice $886 in raw premium compared to the 50 Delta, but you build in an incredible $41.36 physical margin of error from SPY’s current price before you take a single penny of loss.

The 10 Delta (Deep OTM) Approach: The Fortress

You are trading purely for high-probability, low-stress yield. You outright refuse to own SPY unless there is a complete market breakdown.

• Mechanics: Sell the $660 Strike Put.
• The Math: Your strike is $660, and the $3.42 premium drops your true break-even down to $656.58.
• The Outcome: You have a ~90% chance of keeping the premium completely free and clear. You sacrifice significant yield, earning only 3.2% annualized, but you build a massive $83.42 downside buffer (11.2% distance).

3. Phase 2: Assignment & The Covered Call (The Trap)

If SPY drops and you are assigned the 100 shares at expiration, the strategy dictates you immediately begin selling Covered Calls at or above your New Cost Basis to continue driving down your net cost.

• The 50 Delta Trap: Because you caught the falling knife at the absolute top ($740), your cost basis is $722.78. If SPY falls to $700, selling a call at your $722.78 cost basis yields almost zero premium. Your cost basis becomes stranded so high that you can no longer generate income without risking locking in a permanent loss.
• The 25 Delta Advantage: Because your strike was $707, your true cost basis is a highly manageable $698.64. You completely bypassed the first 33 points of the market drop. With your cost basis sitting safely below $700, you can comfortably continue selling covered calls and spinning the wheel as the market bounces.
• The 10 Delta Recovery: If you are assigned at $660, the market has officially entered correction territory. However, your true cost basis is $656.58. Because you bought in at deep recession-level discounts, the moment the market stabilizes and bounces, you will be able to sell highly lucrative covered calls against an asset you acquired at the absolute bottom.

4. The Doomsday Scenarios

To fully grasp why delta selection matters, we must run these strikes through two specific market crashes before the 58 days expire.

Scenario A: The 10% Correction (SPY drops to $666)

Metric	50 Delta (ATM)	25 Delta (OTM)	10 Delta (Deep OTM)
Assignment Strike	$740	$707	No Assignment
True Cost Basis	$722.78	$698.64	$0
Net Result at $666	-$5,678 loss	-$3,264 loss	+$342 (Max Profit)

The Edge: In a standard 10% correction, the 10 Delta survives completely untouched. You keep the $342 premium free and clear while the aggressive traders are nursing heavy paper losses.

Scenario B: The Black Swan (SPY drops to $600)

Metric	50 Delta (ATM)	25 Delta (OTM)	10 Delta (Deep OTM)
Assignment Strike	$740	$707	$660
True Cost Basis	$722.78	$698.64	$656.58
Net Result at $600	-$12,278 loss	-$9,864 loss	-$5,658 loss

The Verdict

• The 50 Delta is an income powerhouse meant only for sustained, sideways-to-upward bull markets. It has zero crash defense.
• The 25 Delta is the mathematical sweet spot. It provides respectable annualized yield (~7.4%) while acting as structural crash insurance against normal market pullbacks.
• The 10 Delta is a pure capital preservation tool. While the annualized yield (~3.2%) barely matches short-term Treasury rates, it acts as a subsidized limit order—paying you a small retainer fee while you wait for the market to suffer a catastrophic breakdown before you finally buy in.