Selling Weekly Puts on SPY: 5-Year Backtest Results
The Put Selling Strategy
Selling cash-secured puts is one of the most popular income strategies among options traders. The idea is simple: sell a put option, collect premium, and either keep the premium if the stock stays above the strike or buy the stock at a discount if it drops below.
We backtested selling weekly puts on SPY from 2021 through 2025 — 260 weeks of real market data including the 2022 bear market and the 2023-2025 bull run.
Strategy Parameters
- Underlying: SPY
- Frequency: Weekly (sell every Monday, expiring Friday)
- Strike selection: 5% out-of-the-money (OTM)
- Position sizing: Cash-secured (enough cash to buy 100 shares at strike)
- Management: Hold to expiration (no early exit)
- Capital: $50,000 starting balance
Overall Results
- Total Trades: 260
- Winners: 234 (90.0%)
- Losers: 26 (10.0%)
- Total Premium Collected: $18,420
- Total Losses from Assignment: $12,680
- Net Profit: $5,740
- Annualized Return: 2.3%
The 90% win rate sounds impressive, but the net return is underwhelming. Here's why.
The Problem with Put Selling
The losses cluster during drawdowns. During the 2022 bear market (January to October), our strategy had 18 losing weeks that wiped out months of premium collected. A single bad week (the September 2022 CPI selloff) resulted in a $2,800 loss — equivalent to 7 months of average weekly premium.
This is the fundamental challenge of put selling: you collect small premiums consistently but face large, concentrated losses. The risk-reward is asymmetric in the wrong direction.
Varying the Delta
We also tested different strike selections:
- 2% OTM (higher premium, more risk): 82% win rate, 4.1% annualized return, 24% max drawdown
- 5% OTM (our base case): 90% win rate, 2.3% annualized return, 14% max drawdown
- 10% OTM (lower premium, less risk): 96% win rate, 0.8% annualized return, 5% max drawdown
The further OTM you go, the higher your win rate but the lower your return. At 10% OTM, you're essentially earning less than a money market fund with more risk.
Adding Early Management
The results improve significantly when we add early profit-taking:
- Close at 50% profit: Win rate 94%, annualized return 3.8%, max drawdown 9%
- Close at 50% profit OR 200% loss: Win rate 92%, annualized return 4.5%, max drawdown 7%
Managing trades early — taking profits quickly and cutting losses — transforms the strategy from mediocre to acceptable.
Comparing to Buy-and-Hold SPY
During the same 2021-2025 period, SPY buy-and-hold returned approximately 62% total (10.2% annualized). Our best put-selling variation returned 22.5% (4.5% annualized with management).
Put selling underperformed buy-and-hold by a wide margin. However, it had roughly one-third the drawdown and much lower volatility.
Who Should Sell Puts?
Based on our backtest, selling puts makes sense if:
- You want to buy SPY anyway and don't mind getting assigned
- You prioritize income over capital appreciation
- You actively manage positions (don't hold to expiration blindly)
- You understand and accept the tail risk
It does not make sense if you're comparing it to buy-and-hold as a growth strategy. The data clearly shows buy-and-hold wins on total returns.
Key Takeaway
Selling weekly puts on SPY is not the "free money" strategy that social media makes it out to be. It works, but only with active management, realistic expectations, and an understanding that the occasional large loss will offset many small wins.
The backtest doesn't sugarcoat — it reveals the full picture.