Hello, I’m new to MesoSim, it looks like a really powerful options backtester.
Can someone help me out? Can MesoSim model the Wheel strategy? Do any of you trade the Wheel, and does it still work in today’s market?
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hello Lukas, mesosim can’t backtest the wheel per se because it doesn’t have the stock, only options, but it can backtest the PMCC (poor man covered call) - you buy a long call ITM in some far way DTE and sell short calls in shorter DTE against it. You can try in any of the tickers available in mesosim - perhaps GLD since is etf could be an idea. The long call simulates the long shares of the wheel. If you want to sell the put to mimic the wheel, you could close the put you sold right before it expires ITM and buy the long call at delta 95 360DTE for instance, as a replacement for the shares, and start selling the calls against it. The advantage of the long call is the reduced cash/BP required.
My two cents on the wheel - a very very bad idea in prob most of the bullish underlyings. You cap your upside but you keep entirely the dowside. So in a bull mkt you’ll make way less money than if you simply had bought the shares and let them run… and when things turn south, that upside you missed during the bull run will be missed a lot. And while selling those short calls will be nice when the mkt starts the pullback, and you will be glad those small profits are there to offset some of the losses from your long shares, at the moment there’s a big rebound you will be screwed again - had the gains of the bounce all capped, if not end up losing some more due to the short calls goind deep ITM. Wheel and PMCC can work? Yes, sure, but you gotta find right underlyings and be mindful of when it’s a good idea to trade those.
Thank you for the detailed response, Rafael! So if the Wheel is not great, what other strategy would you recommend for an options trading newbie?
hey Lukas, while I think there’s no real benefit in trading the wheel in most cases, if you want to own 100 shares of a certain stock you can still use the concept and sell a put instead of going and buying it directly. Say you want to get into QQQ bef the potential upcoming year end rally - instead of buying the stock, you can wait for a down day and sell a put 1 to 7 days out targeting a better price below where QQQ is currently. If you get assigned you made a few bucks selling that put and you will keep that money plus your shares - just don’t start selling the freaking calls because that’s when you cap your upside and later you will miss the gains. If you don’t get assigned, rinse and repeat, if you are lucky you can keep doing it for a while - the mindset only need to be “this is a good asset and I want to own it”, so that you don’t end up bag holding crap. BEsides that, Tibor published the GLD put selling idea ( GLD Put-Write Strategy | Deltaray Blog ) - gld has been on a tear since last year and this strategy has been very good, and it’s unlikely that you would regret by getting assigned on GLD shares, giving the potential that gold has pontential to keep going higher in the foreseeable future. Another public strategy that I contributed a while back was the relaxed superbull ( SuperBull and Relaxed Variant | Deltaray Blog ), it’s a call debit spread that you add following a simple entry rule (risk_reward < 0.7, which normally is provided by the brokers when you build the trade) and has a stop loss and profit target - if none are reached in 60 days you exit. I did a quick run on recent performance and it beats buy and hold and you get a considerable increase in the calmar ratio (+40%) - i consider it very safe for any beginner and it’s defined risk - even if you screw up will not get badly hurt: MesoSim Portal by deltaray
Tibor should also now and then publish some new public strategies and you can check how confident you are to try them out.
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Hey @lukas_stein !
While I share @rafael_munhoz 's opinion on the effectiveness of The Wheel, I thought I should expand a bit further:
The Wheel Strategy uses cash secured puts and covered calls to generate income.
In cases of assignment for the put side you end up holding the shares. These shares are ‘returned’ once your call side gets assigned, leaving you at 0.
MesoSim was built to simulate options, therefore, the ‘holding the shares’ part needs some additional care: we can simulate that using synthetic long positions using options. The following backtest is taking that approach:
Backtest: GLD-Wheel / TrustyHorse
note: the above was created using MesoSim AI Assistant. I did a similar backtest for someone in the past manually, it was very similar performance.
It’s easy to see that Rafael’s suggestion of GLD PutWrite strategy performs much much better with little effort.
Regarding other strategies:
The ones Rafael provided are good starting points.
I’m planning to add the Rhino Trade (by Brian Larson and Bruno Voisin) to our strategy library in the next few weeks. Stay tuned!
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This is very insightful Rafael, thanks for taking the time to talk to me!
Thank you so much Tibor, I’ll review the strategies you both shared. I’m looking forward to the Rhino trade post. I’ll do a bit of research until then!