SPY Wheel 0 DTE Cash-Secured Options Backtest

In this post we’ll take a look at the backtest results of running a SPY wheel 0 DTE cash-secured strategy each trading day from Mar 1 2018 through Jan 31 2021 and see if there are any discernible trends. We’ll also explore the profitable strategies to see if any outperform buy-and-hold SPY.
Backtest duration is limited due to the release date of Monday-expiring weekly options on SPY (see SEC release 34-82733).
Prior research suggests that early management doest not benefit SPY short put 0DTE cash-secured or SPY short put 0DTE leveraged strategies. Thus, this study will only look at strategies that hold option positions till expiration.
There are 5 backtests in this study evaluating over 3,200 SPY wheel 0 DTE cash-secured trades.
Let’s dive in!
Contents
Summary
Systematically running the SPY wheel 0 DTE cash-secured strategy was unprofitable across all strategies except 5D.
None of the wheel strategies outperformed buy-and-hold SPY with regard to total return.
Methodology
Strategy Details
- Symbol: SPY
- Strategy: Wheel
- Days Till Expiration: 0 DTE +/- 3, closest to 0
- Start Date: 2018-03-01
- End Date: 2021-01-31
- Positions opened per trade: 1
- Entry Days: wheel
- Entry Signal: N/A
- Timing 3:46pm ET
- Strike Selection
- 5 delta +/- 4.5 delta, closest to 5
- 10 delta +/- 5 delta, closest to 10
- 16 delta +/- 6 delta, closest to 16
- 30 delta +/- 8 delta, closest to 30
- 50 delta +/- 8 delta, closest to 50
- Trade Entry
- 5D short put or call
- 10D short put or call
- 16D short put or call
- 30D short put or call
- 50D short put or call
- Exit Logic: whichever occurs first
- Exit Profit Target: N/A
- Exit DTE: Expiration
- Exit Hold Days: N/A
- Exit Stop Loss: N/A
- Exit Signal: N/A
- Max Margin Utilization Target (short option strats only): 20% | 1x leverage
- Max Drawdown Target: 99% | account value shall not go negative
Assumptions
- Margin requirement for short CALL and PUT positions is 20% of notional
- Margin requirement for short STRADDLE and STRANGLE positions is 20% of the larger strike
- Margin requirement for short VERTICAL SPREAD positions is the difference between the strikes
- Margin requirement for short CALENDAR SPREAD positions, where the short option expires after the long option, is 20% of the short option
- Margin requirement for long CALENDAR SPREAD positions, where the short options expires before the long option, is the net cost of the spread
- Early assignment never occurs
- There is ample liquidity at all times
- Margin calls never occur (starting capital is set using hindsight bias so that max margin utilization never exceeds 100%)
- Apply a 20% discount to displayed results. For example, if a strat depicts a CAGR of 10%, assume that it’ll yield 8% in practice.
Mechanics
- Prices are in USD
- Prices are nominal (not adjusted for inflation)
- All statistics are pre-tax, where applicable
- Margin collateral is invested in 3mo US treasuries and earns interest daily
- Option positions are opened at 3:46pm ET
- Option positions are closed at 3:46pm ET (4:00pm if closed on the date of expiration)
- Commission to open, close early, or expire ITM is 1.00 USD per non-index underlying (eg: SPY, IWM, AAPL, etc.) contract
- Commission to open, close early, or expire ITM is 1.32 USD per index underlying (eg: SPX, RUT, etc.) contract
- Commission to expire worthless is 0.00 USD per contract (non-index and index)
- Commission to open or close non-option positions, if applicable, is 0.00 USD
- Slippage is calculated according to the slippage table
- Starting capital for short option backtests is adjusted in $1000 increments such that max margin utilization is between 80-100%, closest to 100%, of max margin utilization target
- Starting capital for long option backtests is adjusted in $1000 increments such that max drawdown is between 80-100%, closest to 100%, of max drawdown target
- Positions that have an exit date beyond the backtest end date are excluded
- For comprehensive details, visit the methodology page
Results
Starting Capital


Starting capital was held constant across all strategies and is equal to 100 shares of the underlying at the closing price on the backtest start date.
Premium Capture


Premium capture was mixed across delta targets.
Monthly Returns
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Max Drawdown
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Average Trade Duration

Short calls and short puts were 0-3DTE positions and held till expiration.
Compound Annual Growth Rate
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Annual Volatility
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Sharpe Ratio
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Profit Spent on Commission

46.17% – the average percent of profits spent on commission across profitable option strategies.
Total P/L


Total profit and loss was mixed across delta targets.
Overall
One of the SPY Wheel 0DTE strategies was profitable.
Discussion
The “Wheel” is a three-part option strategy that involves:
- Selling cash-secured puts on an underlying.
- If/when one gets put shares, hold the long shares and sell covered calls against them.
- If/when one’s shares get called away, return to selling cash-secured puts.
Often dubbed as the “triple income” strategy, the idea is that a trader receives income from the short put premium, experiences capital appreciation and/or receipt of dividends on the long underlying, and receives income from the short call premium.
Despite the promise of three revenue streams and the promise of lower volatility associated with options strategies, not a single wheel strategy outperformed the “single income” strategy of buy/hold with regard to total or risk-adjusted return.
Let’s take a look under the hood to see what’s happening.
5D Hold Till Expiration Details
This strategy yielded the greatest total return among the SPY wheel 0 DTE cash-secured strategies.
Curves
The volatility in mid-to-late Dec of 2018 was enough to have shares put to the trader, have the shares almost immediately called away before recovering, and return the strategy to the short put “cycle.” This is whipsaw at its finest.
Win Rate
The short put and short call positions both experienced a win rate roughly in line with expectations.
The long underlying experienced 380 trading days of market exposure.
Profit and Loss
The short puts contributed roughly 76% ( 1.51 / 1.99 ) to the bottom line with the short calls contributing about 84% ( 1.68 / 1.99 ). Long SPY was responsible for -60%.
Both option segments of the wheel were profitable. The equity segment was unprofitable.
Performance
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Risk Characteristics
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16D Hold Till Expiration Details
This strategy yielded the least total return among the SPY wheel 0 DTE cash-secured strategies.
Curves
Similar to the 5D instance, the volatility in mid-to-late Dec of 2018 was enough to have shares put to the trader, have the shares almost immediately called away before recovering, and return the strategy to the short put “cycle.” This occurred again in with the Feb/Mar 2020 volatility.
Win Rate
The short put positions experienced a win rate above expectations and the short call positions experienced a win rate roughly in line with expectations.
The long underlying experienced 183 trading days of market exposure.
Profit and Loss
The short put segment of the wheel was profitable. The short call and long equity segments were unprofitable.
Performance
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Risk Characteristics
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Timing Luck
Timing luck has a material influence over the wheel strategy. Consider the following hypothetical 45 DTE cash-secured put trade:
Suppose a trader “A” started the wheel strategy at some arbitrary date; their trade is represented by the red line. A week later trader “B” started the wheel strategy, represented by the yellow line, and opens a similar 45 DTE position with an expiration date 1 week later than trader “A” . Trader “C” started the wheel strategy a week after trader “B” and is represented by the green line.
Trader A and B will have shares of SPY put to them come expiration and their implementation of the wheel will transition to covered calls. Meanwhile, trader C will have a profitable CSP and their implementation of the wheel will remain in the CSP cycle. These nuances, summed over the span of a multi-year implementation, will yield different strategy results despite the strategy being mechanically identical.
This effect generally becomes more pronounced the longer the expiration cycle (read: longer DTE) and less pronounced the shorter the expiration cycle (shorter DTE).
Additional Resources
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June 13, 2021 @ 9:46 am
Hi, I thought for the wheel you should sell the covered calls at the same strike as the put you got assigned on. That’s how you make it back. For example, you sold puts at $300 (whatever delta that is at the time) and then it drops to $250. After that you keep selling calls at $300 until you participate in the recovery. Has my interpretation of the wheel been tested? Cheers
June 14, 2021 @ 4:49 pm
Hmm, this is different than the typical “hold-the strike” approach.
I don’t have a hold-the-strike version of the wheel backtested. However, BigERN does a great job explaining why this would not be an optimal approach over at https://earlyretirementnow.com/2020/06/10/passive-income-through-option-writing-part-4/ (scroll to section titled “Why not just keep selling puts at the last strike at which you lost money?”).
TLDR: holding the strike of the short put is only effective if the recovery is swift. A prolonged bear market would likely blow out an account.
As for setting the call strike equal to the put strike that expired ITM, I speculate that should the recovery be unexpectedly strong, the call will expire ITM for a “loss.” If implementing a tasty-trade-style 45DTE strat for the short calls, the results are essentially all negative (https://spintwig.com/spy-short-call-strategy-performance/).
August 23, 2022 @ 9:59 pm
So how does this work mechanically actually? Meaning when a put goes ITM and is assigned (assuming we take it to expiry), we then sell a covered call and the shares P&L is then logged when the assigned shares are eventually called away (i.e. shares P&L based on the assigned put strike and covered call strike)?
August 24, 2022 @ 12:15 am
Yes, when the short put expires ITM and shares are put to the trader, the trader then sells a covered call the following trading day. The long stock covering the short call has a negative PnL since it was purchased at a price above where it’s currently trading (technically the loss is associated with the short put that expired ITM; the net effect is the same).
If a SPY short put struck at 415 settled at 410, the account balance would go from $41,500 in cash to $41,000 worth of SPY shares + any premium received from selling puts.
If the price of the underlying increases by more than the premium received from selling puts (eg: when buy/hold is outperforming cash-secured put selling), the trader will need to top off the account, as needed, in order to ensure subsequent short puts are cash-secured.
When the short call expires ITM and shares are called away from the trader, the trader then tops off the account with enough capital, as applicable, to sell a cash-secured put at the new strike price.