SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Using ORATS Wheel To Test Entries and Exits

My favorite option strategy backtester is ORATS Wheel, which includes a free trial for those interested. In the Steady Momentum PutWrite Strategy (SMPW), we sell out of the money puts on global equity indexes and ETF’s while holding our collateral in short and intermediate term fixed income ETF’s.

There are many potential ways to manage a short put trade, so in this article I’ll share some backtested research to look at the differences between a few methodologies.


In SMPW, we benchmark our performance against an ETF that attempts to replicate a popular index, CBOE S&P 500 PutWrite Index (PUT). PUT uses a simple approach of selling front month S&P 500 puts and holding them until expiration. 33 years of historical data is available on CBOE’s website to see the results of this straightforward approach. I like to think of PUT as a broad measure of the “beta” of put writing, similar to an index like the Russell 2000 for US Small Cap stocks.


We’ll test this methodology on 7 different underlying assets from 2007-2019 (the data period available in ORATS Wheel). We’ll also test entering at 45 days until expiration (DTE) with an exit at 21 DTE. Lastly, we’ll test a 30 DTE entry with exits occurring when 75% of the credit received has been earned or 5 DTE, whichever occurs first. We’ll look at both excess annualized returns, net of estimated transaction costs, as well as risk adjusted returns with the Sharpe Ratio. Sharpe Ratio is a popular risk adjusted return measurement that is calculated as annualized excess return divided by annualized volatility.





Interpreting The Data

There are many ways to interpret what this data is telling us. I prefer to increase the sample size when reviewing parameter choices by averaging results across multiple underlying assets. In this case, 7 symbols were tested over a period of 13 years, with entries assumed to occur every 7 days, creating a sample size of more than 4,500 total trades.  A large sample size helps minimize the impact of any outlier trades that may have occurred during the sample period that might otherwise skew results in a way that could lead to false conclusions.


Overall, it doesn’t look like there was a significant difference in results based on the trade parameters over this time period. This is good, as we prefer to see broad parameter stability. The 45 DTE to 21 DTE method produced average results that were slightly worse than the other 2 methods, which is interesting considering this approach is recommended by a popular options trading educator and brokerage firm.


In SMPW, we enter our short puts around 30 DTE and look to exit when we’ve made 75% or more of the credit received or about 5 DTE, whichever occurs first. With lower priced ETF’s that represent International equities we typically wait to exit winning trades until they are worth a nickel or less, as certain brokers allow you to exit these positions commission free. The logic, which is generally supported by the data in the chart, is that rolling winning trades ahead of expiration when we’ve made most of the potential profit maymodestly increase returns over the long term since we expect the equity premium to persist. Exiting losing trades a few days before expiration slightly reduces the risk of large losses due to the negative gamma of a short option that increases as expiration approaches.  


Conclusion: The Power of Diversification

My final point is meant to highlight the power of diversification.  Looking specifically at the 30 DTE to 5 DTE results, we see an average Sharpe Ratio of 0.59.  I had the ORATS Wheel combine together all 7 symbols into an equal weighted portfolio, and the result was a Sharpe Ratio of 0.76...a 29% relative increase.  Diversification is a generally accepted way to either A. increase returns for the same risk or B. maintain the same return with lower risk. Diversification can be achieved in many ways, and it’s one of the most compelling opportunities for “craftsmanship alpha” in the portfolio construction process that is used in our SMPW strategy.


Jesse Blom is a licensed investment advisor and Vice President of Lorintine Capital, LP. He provides investment advice to clients all over the United States and around the world. Jesse has been in financial services since 2008 and is a CERTIFIED FINANCIAL PLANNER™ professional. Working with a CFP® professional represents the highest standard of financial planning advice. Jesse has a Bachelor of Science in Finance from Oral Roberts University. Jesse manages the Steady Momentum service, and regularly incorporates options into client portfolios.

Related articles:

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles


  • McDonald's, Not A Shelter in the Coming Storm

    The amount of time and effort that investors spend assessing the risks versus the potential returns of their portfolio should shift as the economy and markets cycle over time. For example, when an economic recovery finally breaks the grip of a recession, and asset prices and valuations have fallen to average or below-average levels, price and economic risks are greatly diminished.

    By Michael Lebowitz,

  • Risk Depends On Your Time Horizon

    Those who are nearing retirement and those who have recently retired represent the majority of my financial planning and investment advisory client base. One of the most common mistakes I hear from these types of individuals is something similar to “I no longer have enough time for the market to come back.”

    By Jesse,

  • Estimating Gamma for Calls or Puts

    In a recent article, the details for estimate Delta were explained. This article deals with estimates of Gamma, which is denoted with the Greek symbol Γ. This calculation measures the rate of change in Delta and is summarized in percentage form. It is alternatively called the option’s curvature.


    By Michael C. Thomsett,

  • Why Options Traders Fail?

    In the last 8 years, I trained thousands of options traders. I have seen many success stories, but also a lot of failures. There are a lot of reasons why many options traders fail. Here are the most common reasons, courtesy of our good friend and veteran options trader Gavin McMaster

    By Kim,

  • Using ORATS Wheel To Test Entries and Exits

    My favorite option strategy backtester is ORATS Wheel, which includes a free trial for those interested. In the Steady Momentum PutWrite Strategy (SMPW), we sell out of the money puts on global equity indexes and ETF’s while holding our collateral in short and intermediate term fixed income ETF’s.

    By Jesse,

  • Estimating Delta for Calls or Puts

    Options trading relies on many estimates of value and volatility. Among these, the most useful estimate is Delta. Even knowledgeable options traders might not fully understand the “Greeks” and how they operate, especially with one another. They are directly related and are useful in making comparisons of market risk and volatility.

    By Michael C. Thomsett,

  • Are Covered Calls a ‘Sure Thing?’

    Most covered call writers enjoy the regularity and reliability of the position. In the majority of cases, the covered call will be profitable, even when underlying shares are called away. This assumes that the strike is higher than the basis in the underlying, and that the call writer understands the real limitations to the strategy.

    By Michael C. Thomsett,

  • Lessons from Bill Ackman's comeback

    Bill Ackman is an American investor, hedge fund manager and philanthropist. He is the founder and CEO of Pershing Square Capital Management, a hedge fund management company. Ackman is considered by some to be a contrarian investor but considers himself an activist investor.

    By Kim,

    • 1 comment
  • Steady Futures 2019 Performance Analysis

    Steady Futures began trading the 50K portfolio in July 2019. It produced a 8.5% return during its 6 months of performance (18.0% annualized). We had three goals when we developed this system. First, we wanted a robust system that benefits from turmoil in the markets.

    By RapperT,

  • SteadyOptions 2019 - Year In Review

    2019 marks our 8th year as a public service. It was a good year overall. We closed 151 winners out of 232 trades. Our model portfolio produced 41.7% compounded gain on the whole account based on 10% allocation per trade. We had only two losing months in 2019. 

    By Kim,


  Report Article

We want to hear from you!

There are no comments to display.

Your content will need to be approved by a moderator

You are commenting as a guest. If you have an account, please sign in.
Add a comment...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


Options Trading Blogs Expertido