About the Annualized Option Return Calculator
This annualized option return calculator shows what the premium from a short option is really worth as a yield. Enter the strike, the premium per share, the number of contracts and the days to expiration, and it divides the net premium by the capital the trade ties up, then scales that return to a full year both simply (×365 ÷ days) and with compounding, as if you could repeat the same trade back to back.
It is built for option sellers who run cash-secured puts or covered calls (the wheel strategy) and want to compare a 7-day trade against a 45-day trade on equal footing. For a cash-secured put the capital is the cash set aside to buy the shares at the strike; for a covered call it is the current value of the 100 shares per contract you own. Covered calls also show the total return if the shares are called away at the strike.
The annualized figure assumes the option expires worthless and that you could earn the same return again every cycle, which is rarely true. Assignment, losses on the shares and changing premiums all affect real results, so treat the number as a comparison yardstick, not a forecast.
With the default inputs, the annualized return (simple) is 22.65%. Change any value above to recalculate instantly.
How to use the annualized option return calculator
- 1Choose cash-secured put or covered call.
- 2Enter the current stock price and the strike you sold.
- 3Enter the premium per share (the quoted option price) and the number of contracts.
- 4Enter the days to expiration and your commission per contract.
- 5Compare the simple and compounded annualized returns across trade ideas.
Formula and method
The trade return r is the net premium divided by the capital the position ties up. For a cash-secured put the capital is strike × 100 × contracts, the cash your broker holds in case you are assigned. For a covered call it is the current stock price × 100 × contracts, the value of the shares you are holding to cover the call.
The simple annualized return multiplies r by 365 ÷ days, which is how most option sellers quote premium yield. The compounded figure assumes every cycle’s premium is reinvested, so it is higher for short-dated trades. The covered-call “if called” return adds the gain or loss from selling the shares at the strike. Breakeven is strike minus net premium per share for a put, and stock price minus net premium per share for a covered call.
- r
- Return on capital for one trade
- capital
- Strike × shares (put) or stock price × shares (covered call)
- days
- Calendar days until expiration
- fees
- Commission per contract × contracts
Worked examples
30-day cash-secured put at a $48 strike
Selling one $48 put for $0.90 brings in $90 less a $0.65 commission = $89.35. The cash secured is $4,800, so the trade returns 1.86% in 30 days. Multiplying by 365/30 gives a simple annualized return of about 22.6%; compounding 12.17 cycles a year gives about 25.2%.
Covered call: 2 contracts, 45 days
Two calls at $2.50 on 200 shares worth $20,000 earn $500, a 2.5% return in 45 days, or 20.28% annualized. If the stock finishes above $105 the shares are sold for a $1,000 gain, lifting the total return to 7.5% (60.8% annualized).
Weekly put on a $20 stock
Five $20 puts for $0.15 earn $75 on $10,000 of secured cash: 0.75% in a week. Scaled simply that is 39.1% a year, and compounded over 52 weeks it is about 47.6% — which is why weekly yields look so high and why they assume no losses.
Frequently asked questions
How do you calculate the annualized return on a cash-secured put?+
Divide the premium received (after fees) by the cash secured, which is the strike × 100 per contract, then multiply by 365 and divide by the days to expiration. A $90 premium on a $48 strike for 30 days is 1.875% before fees, or about 22.8% annualized.
Should I use simple or compounded annualized return?+
Simple annualizing (× 365 ÷ days) is the common convention and is more conservative. Compounding assumes you reinvest the premium in an identical trade every cycle, which inflates short-dated trades and rarely matches reality. Use the simple figure to compare trades.
Should capital for a put be the strike or the strike minus the premium?+
Both conventions are used. This calculator uses the full strike value because that is the cash your broker locks up. Dividing by strike minus premium gives a slightly higher return; be consistent when comparing trades.
Is a high annualized option return realistic?+
The annualized figure assumes every trade expires worthless and that you can repeat it indefinitely at the same premium. Assignment at a loss, earnings moves and lower premiums in calm markets mean real annual results are usually much lower.
What is a good annualized return for selling options?+
There is no standard benchmark. Compare the annualized premium yield with what the same cash would earn risk-free in Treasury bills, and remember you are being paid to take the stock’s downside. Unusually high premium yields reflect high implied volatility — the market expects a big move, so the risk of assignment at a loss is greater.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.