We tested 17,100 option-selling strategies on SPY and QQQ
We tested 17,100 option-selling strategies on SPY and QQQ from January 2022 to October 2026: 6 structures, 6 deltas, 4 expiries, 6 exits and 15 filters based on dealer gamma exposure (GEX) and the volatility risk premium (VRP). Every trade was priced from archived bid and ask quotes.
The main finding concerns same-day short strangles. Negative-gamma days were 60% to 63% of SPY trades and held 72% to 74% of the dollar losses. On QQQ they were 54% to 60% of trades and held 68% to 76% of the losses. Selling only on positive-gamma days, every strangle setup we tested made money on both ETFs at midpoint fills.
Background
Market makers hedge the delta of the options they hold. When they are net long gamma (positive GEX), hedging means selling rallies and buying dips, which dampens moves. When they are net short gamma (negative GEX), they hedge with the move, which can amplify it. GEX does not predict direction, only how far the market is likely to move, which is the risk a short strangle carries. The gamma flip is the price at which net GEX changes sign.
Method
- Instruments: SPY and QQQ, January 2022 to October 2026.
- Core trade: short strangle at 0.10 or 0.25 delta, 0DTE or 1-week expiry, sold at 09:35 ET and bought back at 15:55 ET.
- Contract selection: nearest to the target delta, open interest of at least 250, spread of at most 20%.
- Pricing: archived bid and ask quotes, $1 commission per contract on every leg, four fill levels from midpoint to full spread.
- Regime: net GEX and gamma flip from the previous session’s 15:55 ET snapshot, so the decision is made before the open.
Losses on negative-gamma days
In all eight strangle setups (two ETFs, two deltas, two expiries), negative-GEX days held a larger share of the losses than of the trades, by more than random timing would produce (p ≤ 0.049 in every case, tested against the same calendar shifted to random dates).
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The same applies to the worst trades. Negative-GEX days held 71% to 78% of SPY’s worst 5% of trades and 66% to 81% of QQQ’s. For 0.25-delta 0DTE strangles, the worst positive-GEX day lost $734 on QQQ and $959 on SPY, against $3,272 and $3,074 on negative-GEX days.
Selling only on positive-gamma days
Restricting to positive-GEX days raised the Sharpe ratio and reduced both the maximum drawdown and the worst trade in all eight setups.
- QQQ 0DTE, 0.25 delta: Sharpe +0.35 to +1.38, maximum drawdown −$6,402 to −$2,856, 73% win rate.
- QQQ 1-week, 0.25 delta: Sharpe −0.25 to +1.14, maximum drawdown −$5,687 to −$845.
- SPY 0DTE, 0.10 delta: Sharpe +0.20 to +0.66, maximum drawdown −$3,052 to −$1,377.
- SPY 1-week, 0.25 delta: Sharpe −0.33 to +0.25, from losing to profitable.
Every filtered QQQ setup had a Sharpe ratio above +1.0. SPY improved by less in every setup.
Fills
The figures above assume midpoint fills. At full bid/ask, selling every day lost money in every setup. The filter stayed ahead at every fill level, but at full spread all four filtered SPY setups and two of the four filtered QQQ setups also lost money. QQQ 0DTE 0.25-delta strangles held a Sharpe of +0.72 at full spread, against −0.47 when sold every day.
Across all 17,100 strategies
- The strongest same-day rule was positive net GEX with price above a certified gamma flip. It beat random calendars on both ETFs (p = 0.005 on SPY, 0.006 on QQQ).
- Plain positive GEX passed on QQQ but not on SPY.
- Negative GEX and a high VRP, used as filters on their own, did no better than random timing.
- For positions held to expiry, taking profit at 50% of the credit reduced the maximum drawdown in 179 of 180 designs, with a median reduction of 28%.
The highest Sharpe ratio overall was a 0.10-delta, 1-month SPY put sold every day and held to expiry: +4.08, with 97% winning trades. While positions were open it had a maximum drawdown of $57,739 and a worst day of −$34,906, although no closed trade lost more than $2,142. GEX and VRP filters lowered its Sharpe ratio.
Certified gamma flip
A gamma flip computed from a thin or noisy option book can move when a single strike’s quote widens, which changes the regime label for no real reason. FlashAlpha certifies a flip only when it passes three checks: coverage (at least 75% of the open interest between spot and the level carries usable gamma), quote quality (on expiry day, at least 75% of that open interest has two-sided quotes worth more than their spread) and a stress test (every strike’s gamma scaled by 0.75 and 1.25 without moving the level). The flip was certified on about 80% of SPY sessions and 68% of QQQ sessions. On the other days, flip-based rules did not trade.
Validation
- Rules, fills, filters and pass criteria were committed before any SPY result was computed.
- The idea came from QQQ. SPY was held out and tested once.
- The pre-registered test on 1-week strangles passed every criterion on SPY. The 0DTE, iron condor and GEX-plus-VRP tests improved in every case but did not pass on SPY alone.
- Allowing for all 84 filter tests, the chance that the four strongest same-day results are false discoveries is about 12%.
The rule
Before selling short-dated SPY or QQQ premium, check the previous close:
- Net GEX positive and price above a certified flip: sell.
- Net GEX negative: skip or reduce size.
- No certified flip: use net GEX alone.
Limitations
Short strangles carry unlimited risk, and the filter reduced the worst days without removing them. The study covers one period of under five years on two ETFs, and midpoint fills are a best case in fast markets.
Full study, with every table, the interactive strategy grid, the strategy ranking and Python code: https://flashalpha.com/articles/when-not-to-sell-options-negative-gamma-spy-qqq-short-premium-backtest
All data comes from FlashAlpha’s Historical API, which replays GEX, the certified gamma flip and the full option chain at any past minute.
Not investment advice.
