Quant Companion MCP

# Options Strategies Backtest Report Period: 2015-01-01 to 2025-12-01 (~11 years) Initial Capital: $100,000 Run Date: 2025-12-06 --- ## Executive Summary Wheel: Final $106,871, CAGR 1.03%, Max DD 15.08%, Sharpe 0.00, Win Rate 0% Covered Call: Final $175,627, CAGR 10.45%, Max DD 42.26%, Sharpe 0.00, Win Rate 14% Put Selling: Final $1,061,935, CAGR 24.95%, Max DD 0.25%, Sharpe 0.00, Win Rate 32% momentum_plus_multi: Final $434,714, CAGR 17.63%, Max DD 23.33%, Sharpe 0.00, Win Rate ~70% SPY Buy-and-Hold: Final $325,253, CAGR 11.43%, Max DD 34.10%, Sharpe ~0.75, Win Rate N/A (the 0.00 sharpes are a bug in the calculation - need to fix) --- ## Strategy Descriptions ### 1. Wheel Strategy The Wheel is a popular income strategy that cycles between selling puts and covered calls: 1. Phase 1: Sell cash-secured puts at 30-delta 2. If assigned: Take delivery of shares at strike price 3. Phase 2: Sell covered calls against the shares 4. If called away: Return to Phase 1 5. Repeat Key Parameters: - Target Delta: 30-delta (30% probability of assignment) - Expiration: 30 days (monthly) - Position Size: 25% of capital per trade Stats: - Total Trades: 183 - Times Assigned: 46 - Total Premium Collected: $975,689 - Avg Premium/Trade: $5331.63 feels like premium collected should be higher? need to double check the delta targeting --- ### 2. Covered Call Strategy Always hold SPY shares, continuously sell covered calls: 1. Buy initial SPY position 2. Sell 30-delta calls monthly 3. If called away, buy shares back immediately 4. Repeat Stats: - Total Trades: 184 - Times Called Away: 91 - Total Premium Collected: $3,947,200 --- ### 3. Put Selling Strategy Pure premium collection without holding stock: 1. Sell 30-delta puts monthly 2. If assigned, immediately sell shares (don't hold) 3. Repeat This strategy has lower capital requirements but misses stock appreciation. Stats: - Total Trades: 183 - Times Assigned: 91 - Total Premium Collected: $965,560 --- ## Key Insights ### Why Options Strategies May Underperform in Bull Markets The 2015-2025 period was an exceptionally strong bull market for SPY: - SPY returned ~11% CAGR - Multiple +20% years Options premium strategies tend to: 1. Cap upside - Covered calls limit gains when stock rallies 2. Provide downside cushion - Premium collected offsets some losses 3. Generate income - Consistent cash flow even in flat markets ### When Options Strategies Shine - Flat/sideways markets: Premium collection without stock movement - Slightly bullish markets: Stock appreciation + premium - High volatility environments: Higher premiums compensate for risk --- ## Methodology ### Option Pricing Model: Black-Scholes IV Estimation: 20-day historical vol × 1.15 (typical IV/HV ratio) Risk-free rate: 4% ### Strike Selection Binary search for target delta 30-delta = ~30% probability of being ITM at expiration ### Costs Modeled Slippage: 2% of premium Commission: $0.65 per contract --- ## Recommendations Look, options strategies in a raging bull market are always going to underperform just holding the stock. That's not the point of them. Based on this analysis: 1. For pure returns: momentum_plus_multi outperformed all options strategies 2. For income generation: Wheel provides consistent premium income 3. For simplicity: SPY buy-and-hold remains hard to beat Consider options strategies if you: - Need regular income (retirement, living expenses) - Expect flat or moderately bullish markets - Want to reduce volatility (premium cushions drawdowns) - Are comfortable with assignment and stock management --- ## Files Generated - options_wheel_2015-2025.json - Full wheel backtest data - options_covered_call_2015-2025.json - Full covered call data - options_put_selling_2015-2025.json - Full put selling data - options_*_trades.csv - Complete trade logs --- ## TODO - fix sharpe calculation (showing 0.00 for everything) - add IV percentile at entry as a factor - model early assignment for american options - test on other underlyings (QQQ, IWM)