Wheel Strategy Backtest: The Truth About This Popular Options Method
What is the Wheel Strategy?
The Wheel Strategy is a popular options income method that cycles between selling cash-secured puts and covered calls:
- Sell a cash-secured put — collect premium while waiting to buy the stock at a lower price
- If assigned — you now own the stock at a discount (strike price minus premium received)
- Sell covered calls — collect more premium on the shares you own
- If called away — you sell the stock at a profit (strike price plus all premiums collected)
- Repeat
It's the darling of r/thetagang on Reddit, with users claiming 20-30% annual returns. We put those claims to the test.
Our Backtest Setup
We tested the Wheel on 5 popular underlying stocks from 2020 to 2025:
- AAPL (Apple)
- AMD (Advanced Micro Devices)
- PLTR (Palantir)
- F (Ford)
- KO (Coca-Cola)
**Rules:**
- Sell 30-delta puts weekly
- If assigned, sell 30-delta covered calls weekly
- No rolling or adjusting
- All premiums reinvested
Results by Stock
**AAPL Wheel:**
- Total Return: 47.2% (7.9% annualized)
- Buy-and-Hold AAPL: 189.4% (23.7% annualized)
- The Wheel missed AAPL's massive rallies due to shares being called away
**AMD Wheel:**
- Total Return: 31.8% (5.7% annualized)
- Buy-and-Hold AMD: 312.6% (32.8% annualized)
- Same problem — AMD's explosive growth was capped by covered calls
**PLTR Wheel:**
- Total Return: 62.4% (10.2% annualized)
- Buy-and-Hold PLTR: 28.1% (5.1% annualized)
- The Wheel outperformed! PLTR's choppy, range-bound action was perfect for premium selling
**F (Ford) Wheel:**
- Total Return: 38.7% (6.8% annualized)
- Buy-and-Hold F: 22.4% (4.1% annualized)
- Another Wheel win — Ford's low volatility and range-bound trading favored premium collection
**KO Wheel:**
- Total Return: 28.5% (5.1% annualized)
- Buy-and-Hold KO: 31.2% (5.6% annualized)
- Roughly break-even — KO's low volatility means small premiums
The Pattern
The Wheel Strategy works best on range-bound, moderately volatile stocks. It underperforms badly on stocks with strong upward trends because covered calls cap your upside.
- Wheel wins: PLTR, F (choppy, range-bound)
- Buy-and-hold wins: AAPL, AMD (strong uptrend)
- Tie: KO (low volatility, minimal difference)
The Reddit Claims vs Reality
Reddit users claiming 20-30% annual returns on the Wheel are likely:
- Calculating returns on margin (not on total capital at risk)
- Cherry-picking winning periods (ignoring the losses during drawdowns)
- Not accounting for opportunity cost (the stock they could have just held)
- Using highly volatile stocks (which works until it doesn't)
Our backtests show realistic Wheel returns of 5-10% annualized on large-cap stocks — respectable income, but not the lottery ticket Reddit makes it out to be.
When the Wheel Breaks
The Wheel's worst-case scenario: you sell puts on a stock, it drops 40%, you get assigned, and then it stays down. Now you're selling covered calls at a loss, collecting tiny premiums while sitting on a massive unrealized loss.
This happened with AMD in late 2022 — assigned at $90, stock dropped to $55. Covered call premiums at the $90 strike were essentially zero. You'd have been stuck holding a losing position for months.
Our Verdict
The Wheel Strategy is a legitimate income strategy, but it's not the free money machine Reddit portrays. Use it on stocks you genuinely want to own, in moderate volatility environments, and keep position sizes reasonable.
And always remember: the backtest shows what happened, not what will happen. Past premium is not future income.