Does the Wheel Strategy Actually Work? 10 Years of Backtest Data on SPY
Short answer: The wheel strategy works, but it probably doesn't work the way you think it does. Over 10 years (2015–2025), wheeling SPY returned roughly 9.2% annualized — slightly below SPY buy-and-hold at 11.8%. Where the wheel earns its keep is in reduced drawdowns and income consistency, not in beating the market outright.
If you've spent any time on r/thetagang, r/options, or the Tastytrade community, you've heard the wheel pitched as a conservative income machine. "Sell puts, get assigned, sell calls, get called away, repeat — collect premium the whole time." It sounds elegant. But the real question isn't whether it sounds good — it's whether the math holds up across a decade that includes a 34% pandemic crash, a bear market, and the greatest bull run in history.
I ran the numbers. Let's look at what actually happened.
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The Wheel Strategy, Explained in 30 Seconds
For anyone new: the wheel is a two-phase strategy.
Phase 1: Sell Cash-Secured Puts You sell a put option on a stock you're willing to own (SPY in our case). You collect premium. If the stock stays above your strike, the put expires worthless and you keep the premium. If it drops below your strike, you get assigned — you buy 100 shares at the strike price.
Phase 2: Sell Covered Calls Now you own shares. You sell call options against them. If the stock stays below your call strike, the call expires worthless and you keep shares + premium. If it rises above your strike, your shares get called away (sold at the strike price) and you're back to cash.
Then you repeat from Phase 1. The "wheel" keeps turning.
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The Backtest Setup
I backtested the wheel on SPY with these parameters:
| Parameter | Value |
I also ran variants at 0.20 and 0.16 delta for comparison, which I'll discuss later.
To run your own version of this backtest with different parameters, head to OptionsPilot's backtester. You can adjust delta, DTE, underlying, and management rules — no coding needed.
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Phase 1 Results: Cash-Secured Puts on SPY
First, let's isolate the CSP phase — just selling puts repeatedly without ever getting assigned (we roll down-and-out to avoid assignment when possible).
The 30-delta put generates more premium but gets tested more often. The 16-delta is "safer" but the reduced premium means lower returns. On a risk-adjusted basis (Sharpe), the 20-delta CSP was actually the sweet spot for SPY specifically. Surprised me too.
Key insight: CSPs alone returned 5–7% annualized with moderate drawdowns. That's decent for a single-leg, defined-risk strategy. But it doesn't beat buy-and-hold SPY.
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Phase 2 Results: Covered Calls on SPY
Now the covered call phase — you own shares and sell calls repeatedly.
This is where the wheel's weakness shows. In a strong bull market, your shares get called away before capturing the full upside. From 2019–2021, SPY gained roughly 90% cumulative. The 30-delta covered call captured only 62% of that upside — missing approximately $14,000 in gains on a one-lot position.
The covered call phase is a drag in bull markets. You're capping your upside in exchange for premium income that doesn't compensate for the missed appreciation.
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Combined Wheel Results: The Full Picture
Here's what happens when you combine both phases into the full wheel strategy over 10 years:
The wheel underperformed buy-and-hold by 2.6% annually in absolute terms. But it had a meaningfully better Sharpe ratio (0.71 vs 0.62) and its max drawdown was 35% smaller.
This is the trade-off nobody on Reddit tells you about: the wheel is a volatility-reduction strategy that generates income, not a market-beating strategy. If you need monthly cash flow and sleep better with smaller drawdowns, the wheel delivers. If you want maximum long-term returns and can stomach 34% drops, just buy SPY and hold it.
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What Happens During Crashes: The Assignment Problem
The wheel's most dangerous moment is a sharp crash during the CSP phase. Let's look at what happened in March 2020:
Now you're in covered call phase, selling calls while underwater. You sell the $280 call (30-delta) for $8.50. But you need SPY to recover to $325 just to break even on the shares. That took until August 2020 — five months of selling calls while sitting on a losing position.
During those five months, the covered calls generated about $2,100 in premium, which offset some of the loss. But the emotional reality of watching $10,700 in unrealized loss while collecting $400/month in premium is brutal. A lot of wheel traders break discipline here — they stop selling calls, or they sell calls too close to the money and get called away at a loss.
In my backtest, the March 2020 event took the wheel strategy 4 months to recover. Buy-and-hold took roughly the same time because of the aggressive V-shaped recovery. But in a slower recovery (like 2022's bear market), the wheel actually recovered faster — 6 months vs 13 months — because the premium income accelerated the recovery.
The takeaway: the wheel handles bear markets better than bull markets, which is counterintuitive.
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Optimal Wheel Settings from Backtesting
After running 36 parameter combinations, here's what I found:
Best overall: 25-delta, 30 DTE
Not 30-delta (too aggressive, too many assignments) and not 16-delta (too little premium to matter). The 25-delta at 30 DTE hit the optimal balance:
Best for income: 30-delta, 21 DTE
If maximizing monthly cash flow is the priority, shorter DTE and higher delta generates more premium. The trade-off is more frequent assignments and more active management.
Best for risk-adjusted returns: 20-delta, 45 DTE
The Sharpe ratio peaked at 0.78 with wider DTE and lower delta. This version only generated 6.8% annualized, but with just 15.6% max drawdown.
Want to find the optimal settings for your account? OptionsPilot's backtester lets you adjust delta and DTE in real-time and compare results side by side.
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Wheel Strategy vs Buy and Hold: The Honest Comparison
| Factor | Wheel Strategy | Buy and Hold SPY |
My honest take: For most people, buy-and-hold wins. The 2.6% annual drag, worse tax treatment, and weekly time commitment make the wheel hard to justify purely on returns.
But if you're retired, living off your portfolio, or psychologically need to see cash flow — the wheel is a legitimate strategy. It's not a scam and it's not a magic money machine. It's a trade-off.
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The Mistakes Wheel Traders Make
From my backtesting and personal trading experience, these kill most wheel accounts:
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Frequently Asked Questions
Is the wheel strategy profitable?
Yes, but it underperforms buy-and-hold. Over 10 years of backtesting on SPY (2015–2025), the wheel strategy returned 9.2% annualized vs 11.8% for buy-and-hold. The wheel wins on risk-adjusted metrics (Sharpe 0.71 vs 0.62) and generates consistent monthly income averaging $385, but the absolute return gap of 2.6% per year compounds significantly over time. The wheel is profitable; the question is whether that profit justifies the complexity and opportunity cost.
What's the best delta for the wheel strategy?
25-delta for both the cash-secured put and covered call legs produced the best overall results in backtesting. This delta targets roughly a 75% probability of profit on each trade while collecting meaningful premium. 30-delta generates more income but leads to too-frequent assignments. 16-delta is "safer" but the premium is too small to meaningfully contribute to returns. For the CSP phase specifically, 20-delta had the highest Sharpe ratio (0.72).
Wheel strategy vs buy and hold — which is better?
Buy and hold wins on absolute returns (11.8% vs 9.2% annualized). The wheel wins on risk-adjusted returns (Sharpe 0.71 vs 0.62) and drawdown protection (22% vs 34% max drawdown). Choose the wheel if you need monthly income, want smaller drawdowns, and accept lower total returns. Choose buy-and-hold if you want maximum long-term compounding, tax efficiency, and zero maintenance. Backtest both scenarios on OptionsPilot to see the difference with your own parameters.
What happens to the wheel strategy during a market crash?
During the March 2020 crash, the wheel strategy experienced a 22.1% drawdown vs 33.9% for buy-and-hold. However, assignment during the crash meant owning shares at a loss and waiting months to recover. The covered call premium during recovery ($2,100 over 5 months) partially offset the assignment loss but didn't eliminate it. In the 2022 bear market, the wheel recovered in 6 months vs 13 months for buy-and-hold, primarily due to elevated premium income.
Can I run the wheel strategy on stocks other than SPY?
You can, but backtesting shows significantly worse risk-adjusted returns on individual stocks. Single stocks carry earnings gap risk, fundamental deterioration risk, and sector-specific drawdowns that the wheel cannot hedge against. If you want to wheel individual names, stick to mega-caps (AAPL, MSFT, GOOGL) and allocate no more than 20% of your options capital to any single name. SPY and QQQ remain the optimal wheel underlyings.
How much capital do I need for the wheel strategy?
Approximately $45,000–$50,000 for a single SPY wheel position (enough to cover assignment at ~$500/share × 100 shares). You can start smaller with lower-priced ETFs like IWM (~$20,000) or individual stocks. But the math works best with SPY because of tight bid-ask spreads, deep liquidity, and broad diversification. Never use margin for the cash-secured put phase — that defeats the "cash-secured" part and amplifies crash losses.