It is a monthly loop with one number in it. Roughly every four weeks: check the window is open, take the contract count off your current equity, sell it, then wait for the 50% target, which historically arrives after about nine trading days, not thirty.
Most of the time the answer really is "sell 3 SPYM puts." That is the product, not a shortcoming of it. What the tool is actually protecting you from is narrower than it looks:
Sizing drift. The count comes off current equity every cycle. Accounts grow, people keep selling the same number of contracts, and leverage creeps up without a decision ever being made. Recomputing is the whole discipline.
Granularity. One SPY contract is 77% of a $100k account. Which instrument, and how many, is genuinely not obvious, and getting it wrong is not a rounding error.
The ceiling. Run the Shock test once, find the notional that survives a 22% gap with the requirement doubled, then never think about it again.
Quitting during a normal bad run. One cycle in eight loses money. The log scores each loss against 1,095 losing cycles on record so a bad month reads as ordinary instead of as evidence.
Position, Margin, Shock test and Notes are setup and justification. You touch them when something changes, not monthly.
mark + max(pct×underlying − OTM amount, 10%×strike),
where pct is 20% for equity and ETF options and 15% for broad-based index options.
Added to that is the maintenance requirement on the long SPY shares, which is the
larger of the two and the one most calculators leave out. Portfolio margin, if you
have it, is risk-based and much lower. This models the strategy-based case.
overlay.py --stress, and it is the one that produced the
25–40% survivable band. Use this screen for "what if tonight", use that one for
"what size do I run".
Option contracts are left out of the blend. A contract is a liability at market value rather than market exposure, and this tool does not model option delta, so it has no beta to contribute. Including one at zero would not be neutral, it would drag the blended figure toward 1.00 and make a book look closer to the index than it is. Contracts still count toward your equity, because that is what the account is worth; they are only absent from this one number.
Cash and money market funds are different: they are held at beta 0 and DO stay in the blend, because cash genuinely does not fall with the index and a book holding it genuinely falls less.
An employer match is an instant 50% on the money against roughly two points a year from the overlay, about 21× bigger, guaranteed, on day one.
Even with no match, a traditional plan's deduction lets you invest ~47% more up front. At 25–40% notional this strategy takes 33 to 55 years to catch it. A Roth is closer and still wins for 19 to 38 years.
You also cannot run this inside those accounts. Retirement accounts are not permitted to borrow, so any options trade requiring margin is prohibited. Cash-secured puts are allowed, but that means holding cash instead of shares, a different strategy, and historically a worse one.
Two honest exceptions: money you will need before 59½, and money with no tax-advantaged home left. The second case is what this tool is for.
| priority | why |
|---|---|
| 1. 401(k) to the full match | An instant 50% on the money. Nothing competes. |
| 2. Max the tax-advantaged space | Traditional or Roth, per your bracket now versus later. |
| 3. A conservative bridge, if retiring early | Money you spend within 10 years does not belong in a strategy with a −58% drawdown. |
| 4. This strategy | Long-horizon taxable money with nowhere better to go. |
| notional | vs a traditional plan | vs a Roth |
|---|---|---|
| 25% | 55 years | 38 years |
| 40% | 33 years | 19 years |
| 65% | 20 years | 5 years |
This is arithmetic on a backtested figure, not a forecast. It takes the index return and the overlay edge measured over 1993–2026 and compounds them forward. Neither number is a prediction, and the future does not have to resemble a 34-year sample that contained exactly one 2008.
The edge is read off your notional using the measured curve: about 0.6 points at 10% notional, 1.5 at 25%, 2.4 at 40%, 3.8 at 65%. It grows roughly in line with size, which is the honest way of saying most of it is leverage rather than skill.
The drawdown column is not decoration. Every extra point of edge in this table was bought with a deeper hole and a shorter distance to a margin call. A projection that shows only the upside of leverage is the oldest way to mislead someone with a spreadsheet.
What is left out: commissions, the fills you actually get, dividends reinvested imperfectly, any year you skip cycles, and the possibility that you stop after a bad month. The last one is the largest and the least modellable.