Supplement retirement income
- Thread starter aplino
- Start date
Happy New Year
I've backtested the wheel strategy and while not bad, it's not that great either especially when market goes down. In a wheel strategy you sell naked puts (cash covered), so when stock goes down you lose. Or you sell covered calls, hence you hold the stock, again losing money when stock price goes down.
Wheel on SPY:
My strategy:
Well the backtest period is 2002-2016, so the crash is the middle on SPY and QQQ is around 2008. You can see how the strategies fare before and after crash.
I tested a very plain boring wheel, as follows:
1) Sell a covered OTM call at 1 month maturity with 30% probability of getting in the money (so this means also buy 100 shares of stock).
2) If the stock stays below the call strike at option maturity, goto #1, else goto 3.
3) Sell a cash covered OTM put at 1 month to maturity with 30% probability of getting in the money (so a naked put).
4) If the stock stays above the put strike at option maturity, goto #3, else goto 1.
I guess with tweaks it would fare better. My strategy is the result of years of experiments, chances of falling upon it from the first attempt are non-existing. Particularly you see that it's able to extract profitability from a market that is otherwise losing either on long stock or wheel strategy (XME). Gotta tell you it wasn't an easy feat to achieve.
1) Sell a covered OTM call at 1 month maturity with 30% probability of getting in the money (so this means also buy 100 shares of stock).
2) If the stock stays below the call strike at option maturity, goto #1, else goto 3.
3) Sell a cash covered OTM put at 1 month to maturity with 30% probability of getting in the money (so a naked put).
4) If the stock stays above the put strike at option maturity, goto #3, else goto 1.
I guess with tweaks it would fare better. My strategy is the result of years of experiments, chances of falling upon it from the first attempt are non-existing. Particularly you see that it's able to extract profitability from a market that is otherwise losing either on long stock or wheel strategy (XME). Gotta tell you it wasn't an easy feat to achieve.
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So it’s not just Poor’s man wheel then? You are saying you never take possession of the underlying, right?
Nice set of tests Aquarians. What are you using to do the backtests?