Everyone says the wheel strategy works, but what does the data actually show? We ran backtests across different stocks, time periods, and market conditions to find out.

Methodology

Our backtests used the following parameters:

  • Put selling: 30 DTE, 0.25 delta
  • Covered call selling: 30 DTE, 0.30 delta (at or above cost basis)
  • Stocks tested: Large-cap names with liquid options
  • Time period: 2018-2025 (includes COVID crash, 2022 bear market, and 2023-2025 rally)
  • No margin: Cash-secured only
  • Commissions included: $0.65 per contract

    • Aggregate Results

    Across the full sample, the wheel strategy produced the following:

    | Metric | Wheel Strategy | Buy-and-Hold | Annualized return11.2%12.8% Max drawdown-18.4%-33.7% Win rate (monthly)74%61% Sharpe ratio0.890.62 Worst year-2.1% (2022)-19.4% (2022) | Best year | 22.6% (2023) | 26.5% (2023) |

    The headline: the wheel slightly underperformed buy-and-hold on raw returns, but significantly outperformed on a risk-adjusted basis. The Sharpe ratio of 0.89 vs 0.62 tells the real story.

    Market-Specific Results

    Bull Market (2023-2024)

    During strong uptrends, the wheel lagged buy-and-hold by 3-5% annually. Covered calls capped upside, and puts expired worthless consistently (great for income, but you miss some of the rally).

    Bear Market (2022)

    This is where the wheel earned its keep. While buy-and-hold lost 19.4%, the wheel lost only 2.1%. The premium collected during the downturn provided a substantial buffer. Getting assigned on puts hurt, but immediately selling covered calls at higher strikes recovered losses faster.

    Sideways Market (late 2024-early 2025)

    The wheel outperformed by roughly 8% annually in choppy, range-bound conditions. This is the ideal environment — puts expire worthless, stocks hover near their cost basis, and you collect premium from both sides.

    Win Rate Breakdown

    The 74% monthly win rate breaks down as:

  • Months where puts expired worthless: ~65% of all months
  • Months where stock was called away for profit: ~15%
  • Months with net loss (assigned and stock dropped further): ~20%

    • Losing months averaged about -3.2% per occurrence. Winning months averaged +1.8%. The skew is typical for premium-selling strategies — frequent small wins with occasional larger losses.

    The Drawdown Story

    Maximum drawdown is the single biggest advantage of the wheel over buy-and-hold. During COVID (March 2020), buy-and-hold portfolios dropped 30%+. Wheel portfolios dropped roughly 15-18% because accumulated premiums offset some of the decline.

    Recovery time was also shorter. The wheel portfolio recovered from its 2020 drawdown in about 4 months versus 6 months for buy-and-hold.

    What the Data Does Not Capture

    Backtests have limitations:

  • Slippage: Real-world fills may be slightly worse than mid-price assumptions
  • Emotional decisions: Backtests assume perfect execution. Real traders sometimes panic-close or skip cycles.
  • Tax efficiency: The wheel generates short-term capital gains, which are taxed at higher rates. After-tax returns are lower than pre-tax backtests suggest.

    • OptionsPilot's backtester lets you run your own scenarios with custom parameters, so you can see how the wheel would have performed on specific stocks with your preferred strikes and expirations.

    Key Takeaways

  • The wheel does not beat buy-and-hold in strong bull markets. Accept this.
  • The wheel dramatically reduces drawdowns and volatility.
  • The real edge is risk-adjusted: more consistent returns with fewer stomach-churning months.
  • Sideways and mildly bearish markets are where the wheel earns its name.

    • If your goal is maximum total return and you can stomach 30%+ drawdowns, just buy and hold. If you want smoother returns and better sleep, the wheel is hard to beat.