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)
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- 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!
