If you sold a cash secured put, how do you calculate its rate of return and its annualized rate of return?
This is one of those things that different people choose to do differently.
Here is the only method that makes sense to me:
1) Determine how much cash must be set aside to buy shares (strike price x 100), if you are assigned an exercise notice
2) Subtract option premium
3)_That difference is the amount invested
4) Divide profit by amount invested to get % return on investment.
5) Multiply that result by 365 and divide by the number of days required to earn the profit and that's the annualized return
6) Don't forget to include transaction costs in calculations
I don't know what you mean by 'rate of return' because that is the annualized return.
Mark D. Wolfinger
The Rookie's Guide to Options:
The Beginner's Handbook of Trading Equity Options
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