SP 500 etf wheel strategy
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Options Wheel Strategy to 3x Your S&P 500 ETF Return

Do you know how to trade options to maximise returns from S&P 500 ETF?

We'll show you the Wheel Strategy to multiply profits from S&P 500 index.

Why Invest in S&P 500 ETF?

Most experienced traders recognise Standard & Poor's 500 index as the most iconic index fund in the world. It tracks the performance of 500 most profitable companies in the US stock market.

Companies included in the S&P 500 make up around 80% of the total market capitalisation, is widely regarded as the best gauge of large-cap U.S. equities, and a favourite among passive investors.

Most people expect an annual return of 9% from buying and holding ETFs that track the S&P 500 index.

S&P 500 etf公司
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Companies tracked by the S&P 500 index.

Some of the most dominant companies in the world, such as Apple, Google, Facebook, Netflix, Disney are included in the index. Tesla was also included in the S&P 500 index for the first time in December last year.

Investing in an S&P 500 ETF is a diversified way of purchasing stocks from all these companies at the same time.

What Is the Wheel Strategy?

The Wheel Strategy is a set of steps to combine trading options with stocks to increase the return overs the traditional buy-and-hold strategy.

An expert options trader knows that selling options is most profitable when the underlying doesn't fluctuate a lot, which makes the Wheel Strategy perfect for S&P 500 ETFs that are well diversified and prices don't change suddenly.

Which S&P 500 ETF Is Most Suitable for the Wheel Strategy?

There are 3 popular ETFs that track the S&P 500, which are SPY, IVV and VOO. The 3 ETFs have different tracking accuracies, different management fees, so you might wonder which one is most suitable for the Wheel Strategy.

Since the Wheel trading strategy uses options to boost the returns on investing the underlying for the long-term, we choose the best ETF by the volume of options traded for each ETF.

S&P 500 ETFDaily Options Volume
SPY2,272,620
IVV253
VOO111

By comparing the options volume for each of the 3 ETFs, we can tell SPY has exponentially more options liquidity than the other 2. So we will choose SPY is the symbol for trading the Wheel Strategy.

3 Steps to the Wheel Strategy

The Wheel Strategy is a sequences of repeatable steps that we can use to combine options trading with holding stocks to buy low and sell high the SPY ETF.

The 3 steps depend on the number of SPY shares you hold:

  1. Sell a Cash-Secured Put when holding 0 shares
  2. Sell a Strange (a Put and a Call) when holding 100 shares
  3. Sell 2 Call options when holding 200 shares

1. Sell Cash-Secured Put When Holding 0 Shares

When we do not own any SPY stock, we can sell a Cash-Secured Put that expires in 30 days.

wheel strategy step 1 sell put
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Sell Cash-Secured Put to collect premium and also a chance to purchase SPY shares at discount.

If SPY does not drop below the strike price after 30 days, we will collect all the premium from the trade.

If SPY price drops below the strike price, we will be assigned 100 shares of SPY at a discount. Then we move on to the next step.

2. Sell a Strangle When Holding 100 Shares

Now we own 100 shares, we can sell a Strangle that expires in 30 days, which is a combination of a Cash-Secured Put and a Covered Call.

wheel strategy step 2 sell strangle
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Sell a Strangle to collect premium no matter which direction SPY changes, with a chance to buy low or sell high.

If the SPY price stays within the 2 strike prices after 30 days, we collect all the premium from selling options.

If the SPY rises beyond the Call strike, we will forced to sell the 100 shares at a high price. Then we move back to step 1.

If the SPY price drops below the Put strike, we get to purchase another 100 shares at an even lower price. Then we move forward to step 3.

3. Sell 2 Call Options When Holding 200 Shares

Now we own 200 shares of SPY ETF, we can sell 2 Call options at the same time to earn twice the amount of premium.

wheel strategy step 3 sell calls
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Sell 2 Calls to collect double the premium, with a chance to sell SPY shares at a high price.

If the ETF price doesn't rise after 30 days, we collect all the premium.

If the SPY price increases beyond the Call strike, we will sell 200 shares at a high price and move back to step 1.

How to Set the Strike Prices of Put and Call?

If we look at the price history of SPY, we can see the ETF price rarely falls beyond the Bollinger Bands. So we can use the Bollinger Bands to set the strike prices for selling Puts and Calls.

SPY bollinger bands上下限
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The upper and lower Bollinger Bands can be used to set the strike prices of our options.

The upper and lower bounds of the SPY Bollinger Bands are currently $376 and $394, so we can use these as the strike prices for selling Puts and Calls.

Another quick way to set the Strangle prices is to use the Options Scanner to find the prices at 0.20 delta.

SymbolLastStrangle DetailsStrangle BPStrangle ROC
SPY383.63C396(0.19)
P361(-0.20)
431310.5%

The 0.20 delta Strangle suggested by the options scanner:

  • Short $396 Call and short $361 Put
  • If you don't own any SPY shares, you need $4313 buying power for a 10.5% return on capital

Expected Returns of Trading the Wheel Strategy With SPY

We can use step 2 to estimate the returns of trading the Wheel Strategy with SPY. If we assume the fluctuations of SPY rarely exceed our Bollinger Bands, the premium collected from $376 Put and $394 Call is around $1200 per month.

wheel strategy return on capital
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Use the premium from selling Strangles to calculate theoretical Return on Capital.

Since we set aside $77,000 cash to purchase 200 shares of SPY, the monthly return from the premium is 1.6%, which is around 19% per year.

Differences Between Holding SPY ETF and the Wheel Strategy

If buying and holding shares of SPY can expect 9% average return a year, then we can add 19% more from the premium of the Wheel Strategy, tripling our annual returns on investing in SPY.

Trade MethodHolding SPY ETFWheel Strategy
Minimum cost$383$77,000
Annual return9%28%

Now it's your turn to experiment the Wheel Strategy on ETF or low IV stocks. If you would like me to analyse other popular symbols, please leave a message below.

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21 thoughts on “3倍標普500 ETF投資報酬率的「滾輪投資策略」”

  1. Current prices for calls/puts (as of mid Oct 2021) doesn’t yield such high returns and wouldn’t bring you any where close to 1.6%.
    Have the markets changed so much or am i looking at it wrong?

    1. Market has changed a lot over the course of this year. Volatility (VIX) has come down to 16.30 as of today. During the crash last year, VIX peaked at around 80. The historical level is between 11-16. When you consider the current ROC level as not interesting for selling covered calls, it is the normal market environment and return profile that you will be confronted with going forward. You can better sell put and call spreads at the money with much higher ROC because in these cases you are selling at-the-money volatility which is the highest point of volatility of any underlying. The put and call spread scanners are great tools to find such ATM trades. It is not easy to find ATM trades with high probability of success because it is a directional trade with high rewards. I do not trade any covered calls because ROC is low and you don’t want your patiently acquired stocks to be called away and after that the stocks moves another 5% without you owning it. Covered calls is easy to comprehend for beginners as a low risk strategy but doesn’t get you anywhere.

  2. Thank you for this great S&P 500 trading strategy, looks like a great way to accelerate the returns of my SPY long term investment strategy.

  3. Thank you for sharing a comparison of the wheel strategy vs buy and hold
    I’ll be using the wheel strategy to improve the returns of my buy and hold stocks from now on

  4. Thank you for the tip
    This sounds like a good strategy for MSFT
    I definitely would like to own more MSFT stocks at a discount

    1. Hi,如文章提到的The Wheel Strategy主要是用賣期權的收入增加長期持有股票或ETF的投資報酬率
      所以使用滾輪投資時建議使用在:
      1.你願意長期持有的股票/ETF
      2.波動不大的股票/ETF(以免大波動讓股價超越履約價太多,損失價差)

      所以建議使用在FAANG等有競爭力又長期成長的優質股票
      和S&P 500的ETF,例如VOO、IVV等

    1. Hi Simon, thank you for getting in touch.
      Yes, I think TNA and SOXL are also good candidates for the Wheel Strategy, since they are ETFs that tend to be less volatile than individual stocks.
      Their lower prices also mean you need less capital than SPY to execute the Wheel.

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