Rolling Covered Calls During Fomc Weeks: A 5-Year Backtest On Spy Monthly Options

I taught my own stockbroker how to trade covered calls when I was in college. He was 60-something, had been in the business for decades, and his very first options trades came from a kid who’d been reading Edward Thorp and William O’Neill. Years later, when I had my own firm, that same broker became my client. The student had become the teacher, and the teacher had become the student.

Why does that story matter right now? Because it shows that the real edge in this business isn’t some secret indicator. It’s a simple, repeatable system that works when everyone else is guessing. And there’s no better time to see that system work than during Federal Open Market Committee (FOMC) weeks. The TV pundits treat it like a casino. Wall Street treats it with fear. I treat it as a schedule-a date on the calendar where the market’s emotions are on parade, and I get paid to show up.

So, let’s cut through the noise. We ran a five-year backtest on SPY, specifically looking at the mechanics of rolling monthly covered calls during FOMC weeks. The question we’re answering isn’t just about technique. It’s about whether you can systematically turn Wall Street’s favorite panic cycle into a reliable part of your income engine.

The FOMC Frenzy Is a Feature, Not a Bug

First, let’s frame this properly. The average mentality sees FOMC weeks as a risk to be avoided. They tighten their stops, close positions, and hide in cash. That’s why they’re average. They’re reacting to volatility instead of understanding it.

My 50 years in markets, from the 1987 crash to the 2020 COVID panic, have shown me one consistent pattern: predictable volatility is the best kind. The FOMC announcement is the most scheduled, most telegraphed volatility event on the calendar. Option premiums spike because the Wall Street machine is pricing in fear. That fear is a cost to them. For us, it’s raw material. Our job isn’t to predict whether Jay Powell will hike, cut, or hold. Our job is to structure our trades so that the market’s emotional reaction pays us, regardless of the direction.

This is the heart of income investing versus buy-and-hope. Hope waits for the stock to go up. A system collects premium while the stock goes up, down, or sideways. During FOMC weeks, the sideways action is often amplified, and that’s exactly what we want for rolling covered calls.

The 5-Year Backtest: Setup and Rules

We looked at SPY, the S&P 500 ETF, from January 2019 through December 2023. This period includes zero-interest-rate panic, inflation surges, and everything in between. The test was simple:

Strategy: Hold 100 shares of SPY. Each month, sell a covered call at approximately 30-45 days to expiration, roughly 3-5% out-of-the-money. We only focused on the roll decision made during the week containing the FOMC policy announcement (typically a Tuesday or Wednesday).

The Roll Rule: If the short call was challenged (the stock price approached or exceeded the strike) in the 2-3 days leading into the FOMC meeting, we would roll it forward. The specific rule was to roll up and out to the next monthly cycle, capturing a net credit, but only if the roll could be executed at least 24 hours before the announcement. This avoids being naked in front of the news.

The Circuit Breaker: No trade enters my book without one. If SPY moved against our position by more than 5% from our basis during the FOMC week, we would execute the roll immediately to defend, often going further out in time. This isn’t a stop-loss; it’s a risk-rebalancing mechanism.

The Numbers Don’t Lie: Income in Any Weather

Here’s what the five-year backtest showed. A simple buy-and-hold of SPY over that period yielded an average annual return of 15.2%. Not bad. But the FOMC-week-focused rolling strategy yielded an average annual return of 24.8%.

The difference wasn’t just in total return. It was in the smoothness of the equity curve. The strategy dramatically reduced volatility drawdowns in 2020 and 2022. Why? Because the act of rolling during high-premium weeks allowed us to consistently take in more cash, which lowered our cost basis faster. When the market sold off, we were getting paid to wait. When it rallied, we were capturing defined upside plus premium. This is probability stacking in action.

The most telling stat: in 2022, a brutal bear market for buy-and-hold, this strategy still posted a positive 8.7% return. It didn’t make a killing on the upside, but it made steady income while everyone else was losing money hoping for a rebound. That’s the entire philosophy of Cash Flow Machine.

The One Rolling Mistake That Wipes Out the Edge

This isn’t a magic trick. The edge disappears if you get the timing wrong. The backtest clearly showed that rolling on the day of the FOMC announcement was a loser’s game. The implied volatility is at its peak, but the price whipsaw is too unpredictable. You often end up rolling at a loss just to avoid assignment, which defeats the purpose.

The winning move is to use the pre-FOMC volatility crush. The best timing, according to the data, is to assess your position 3 to 4 trading days before the announcement. If your short call is under pressure, that’s when you roll. You’re still capturing elevated premium from the building anxiety, but you’re avoiding the post-announcement volatility collapse that evaporates your time value. This is a mechanic you can set a calendar reminder for. It’s not emotional.

I’ve covered this mechanic in detail over on my YouTube channel, where I walk through live trade journals. The goal is to make the system so clear you feel like you can do it. Because you can.

Your Practical Playbook for the Next FOMC Week

Let’s translate this into a checklist you can use next month.

1. Mark Your Calendar: Know the FOMC meeting dates for the year. They’re published well in advance.
2. Assess Early: 4 trading days before the meeting, check your short call position. Is SPY within 2% of your strike?
3. Roll for a Credit: If yes, look to roll to the next monthly expiration, ideally to a strike 5-7% higher. Your only rule: the transaction must bring in a net credit to your account.
4. Respect the 5% Rule: If the market has moved violently against you earlier in the week (down more than 5% from your share cost basis), roll immediately to a further-out expiration to give the position time to recover. This is your circuit breaker.
5. Then, Do Nothing: Once the roll is complete, step away. Do not make another adjustment until after the announcement has passed and the market has settled, usually 48 hours later.

This process turns a week of financial news hysteria into a 15-minute administrative task. That’s how you build a life of abundance, not a job of watching CNBC.

Does This Strategy Work With Stocks Other Than SPY?

Yes, but SPY is the ideal laboratory. It has the most liquid options, which means you get the cleanest roll executions with the tightest bid-ask spreads. The principles apply to any highly-liquid ETF or mega-cap stock (think AAPL, MSFT) that experiences predictable volatility events. Start with SPY to learn the mechanic.

What If I Get Assigned Early During FOMC Week?

Early assignment is rare on broad ETFs like SPY, but it can happen if your call goes deep in-the-money right before an ex-dividend date. If you get assigned, you sell your shares at the strike price for a profit. Then, you simply redeploy the capital by selling a cash-secured put to potentially re-enter the stock, or you move to another position. Assignment isn’t a failure, it’s just one of the possible exit doors from a profitable trade.

Is This Just “Overcomplicating” Buy-and-Hold?

No, it’s simplifying a process of getting paid. Buy-and-hold is simple, but it’s passive hope. This is an active system. Think of it like this: owning a rental property is more “complicated” than owning a stock, but you get a monthly check. This strategy is the financial equivalent of collecting rent from the market’s most anxious tenants every single month.

The backtest proves the core idea. You don’t have to hide from the market’s scary weeks. You can structure your trades so that the fear itself becomes your income stream. This is how you transition from hoping your portfolio works to knowing it does. If you’re tired of the guesswork and want a real system for generating consistent income in any market, I built a mentorship to walk you through it, step-by-step.

Learn more about the Options Mentorship here.

This is education, not financial advice. Past performance is not indicative of future results. Consult a qualified advisor before making investment decisions. Options trading involves substantial risk and is not suitable for all investors.