How much do option sellers earn historically?
In this study’s S&P 500 simulation — a monthly short straddle sized at 20% of capital, marked to market daily from 1993 to 2026 — gross returns ran about +2.2% CAGR with a 1.32 Sharpe ratio, winning in 67.7% of the 402 months in the sample. After realistic trading costs that falls to roughly +1.1% CAGR and a 0.77 Sharpe.
The gross numbers
Average monthly return was +0.90% (median +1.17%), with a monthly standard deviation of 2.37%. Total return over the full 402-month sample was +105.5% at 20% allocation, versus +43.5% at 10% and +19.8% at 5% — the Sharpe ratio is unchanged across sizing (1.32) since the simulation just scales exposure, but the max drawdown scales with it too: −4.4% at 20% allocation, −2.2% at 10%, −1.1% at 5%.
Costs cut it roughly in half
Applying a 5% bid/ask haircut and 0.15% commission per leg — this study’s stand-in for real-world execution — average monthly return falls to +0.53%, the win rate slips from 67.7% to 59.7%, and the Sharpe ratio drops from 1.32 to 0.77. Total return over the sample goes from +105.5% to +52.2%. Small, frequently-collected premiums are exactly the kind of return stream that transaction costs hurt most.
Delta-hedging changes the picture
A daily delta-hedged version of the same straddle — which strips out the directional bet on the underlying and leaves mostly the volatility premium — won in 83.6% of months, averaged +0.82% per month, and posted a Sharpe of 2.29, nearly double the unhedged gross figure. That’s what an institutional vol desk is closer to running; it’s not what most retail premium sellers actually do, and daily hedging carries its own slippage that a simplified simulation doesn’t fully capture.
The earnings disappear in crashes
None of these averages hold during a crisis. The 15 months spanning the 2008 financial crisis returned −1.5% cumulatively for the straddle, with a single worst month of −7.2% and a worst intra-month mark-to-market of −18.6%. The COVID crash (Feb–May 2020) was worse: −2.8% cumulative, a −12.3% worst month, and a −19.8% worst intra-month move. The 2022 bear market, by contrast, was mild for this strategy at +0.2% cumulative — the pain is concentrated in volatility shocks, not just down markets.
See the full simulation
The S&P 500 page has the complete short-straddle simulation — equity curve, weekly mark-to-market, every allocation size, after-cost and delta-hedged variants, and each major crash as a stress window.
Open the S&P 500 study →Common questions
What's a realistic Sharpe ratio for selling volatility?
In the S&P 500 simulation here, an unhedged monthly short straddle runs a gross Sharpe of about 1.32 since 1993. After a 5% bid/ask haircut and 0.15% commission, that drops to roughly 0.77. Delta-hedging the position daily — stripping out the directional bet — pushes it up to about 2.29.
Does selling options beat just holding the underlying?
On a risk-adjusted basis in this simulation, yes: a 1.32 gross Sharpe is well above what buy-and-hold equity typically runs. But the comparison isn't apples to apples — the straddle's return stream is short volatility, not long the market, and its win rate (67.7% of months) hides a small number of much larger losing months.
How much of the return does trading costs eat?
About half, in this simulation. Gross average monthly return was +0.90%; after a 5% bid/ask haircut and 0.15% commission per leg it fell to +0.53%, and total return over the sample dropped from +105.5% to +52.2% at 20% allocation.
Research and education only — not investment advice, and not a recommendation to sell options. Selling volatility carries uncapped tail risk. Figures are from an illustrative simulation, not a live track record, and exclude taxes, margin financing, and slippage beyond the modeled haircut.