Backtesting The Option Wheel

In this tutorial, we will explain how to backtest the Option Wheel strategy using the OptionStack platform.

The Option Wheel is a strategy that involves selling cash secured puts (CSP) and adjusting them into a covered call if the short puts are assigned into long stock.  

The Option Wheel strategy is as follows:

  • Start by selling cash secured puts (CSP)
    • At expiration, allow out-of-the-money put options to expire worthless.  
    • But allow assignment of long stock for in-the-money put options
  • If CSP expire worthless, sell another set of cash secured puts, collecting more premium with each round of sales.  
  • If CSP are assigned into long stock, sell a covered call against the assigned long stock.
    • At expiration, allow out-of-the-money short call options to expire worthless.
    • But allow assignment of short stock for in-the-money call options
  • If the covered call is assigned at expiration, the short stock from assignment will offset your long stock, resulting in a net zero / flat position.  
  • Rinse and repeat! 

Run Backtest!