April 2026

"Picking Up Pennies in Front of a Steamroller?"

Why the wheel strategy on ETFs is different from pure premium selling — and what tail risk actually means for income investors

If you sell options for any length of time, someone will eventually warn you about "picking up pennies in front of a steamroller."

It's a fair criticism — for certain strategies. But after running the wheel on SCHD and VTI for five years, I've come to believe it doesn't apply to what I do.

Let me explain.

The Criticism

When I posted my April 2026 income update on Reddit, someone made a good point:

"IV on a May 32 call is just over 9%. You are going to get killed on tail risk. Read up on selling option premium the Tasty Trade way, specifically the chapter on tail risk."

He's not wrong about the numbers. SCHD's implied volatility is low — often under 15%. That means premiums are small. And if a crash happens, I've collected $2,400 in premium while watching $300,000 in share value evaporate.

That's the "steamroller" part.

The Tasty Trade Philosophy

Tasty Trade popularized a specific approach to options selling:

• Sell premium when IV is high (IV Rank > 30%)
• Trade liquid underlyings with elevated volatility
• Keep positions small (1-5% of portfolio per trade)
• Close winners at 50% profit
• Diversify across many tickers

It's a solid framework — if your goal is to be a premium seller.

The logic: If you're taking on tail risk, get paid for it. Selling options at 9% IV means you're collecting pennies while exposed to the same crash risk as someone collecting dollars at 40% IV.

Fair point.

Why My Strategy Is Different

Here's where I diverge: I'm not primarily a premium seller. I'm an income investor who uses options.

When I sell a covered call on SCHD, I'm not making a bet on volatility. I'm saying: "I own this ETF, I plan to hold it for decades, and I'd like some income while I wait."

If SCHD drops 30%, yes, my shares lose value. But:

• I still own 48,500 shares of a diversified dividend ETF
• I still collect ~$13,000 in quarterly dividends
• I sell covered calls on the way back up
• I'm not leveraged, so there's no margin call
• SCHD isn't going to zero — it's 100 blue-chip dividend stocks

The "tail risk" for me is owning more of an asset I planned to hold anyway.

When "Pennies in Front of a Steamroller" Actually Applies

The steamroller metaphor fits when:

• You're selling naked puts on volatile single stocks
• You're using margin/leverage
• You're concentrated in assets that can go to zero
• You can't survive a 50% drawdown
• You'd be forced to sell at the bottom

My situation:

• Cash-secured puts and covered calls only
• No margin
• Only SCHD and VTI — diversified ETFs
• Income covers expenses even in a crash
• No reason to sell during a drawdown

The worst case for me isn't losing everything. It's being underwater for 2-3 years while I collect dividends and wait for recovery. That's not a steamroller — that's just investing.

The Real Risks I Do Face

I'm not pretending there's no risk. Here's what actually keeps me up at night:

1. A prolonged crash (2008-style)

A 40-50% drop would hurt. My $2M portfolio becomes $1M on paper. But I'd still own shares, still collect dividends, and still sell calls — just at lower strikes.

2. Low IV for years

If volatility stays suppressed, premiums stay thin. My options income could drop from $90K/year to $40K/year. Painful, but survivable with dividends.

3. Getting called away before a run-up

Opportunity cost is real. When SCHD ran from $29 to $32, I had cash-secured puts instead of shares. I "missed" $80K in appreciation. But I also collected premium the whole time.

4. Tax inefficiency

This is my biggest actual problem. Short-term capital gains on options premiums are taxed at 35%+. That's the real cost of this strategy.

The Bottom Line

Is selling covered calls on SCHD at 9% IV "picking up pennies"?

Technically, yes. The premium is small relative to the potential drawdown.

But here's the thing: I'm not trying to maximize premium. I'm trying to generate sustainable income from assets I believe in.

If you're a volatility trader, the Tasty Trade framework is probably better. Trade high IV, diversify across tickers, manage positions actively.

If you're an income investor who plans to hold ETFs for 20+ years anyway, the wheel works — even in low IV environments. The "tail risk" is just volatility, and volatility is temporary.