How to Calculate ROI in Options Trading
It is common for options traders to concentrate on the premium they receive or the dollar amount earned from a particular position. At first sight, this seems reasonable. For instance, if you sell a put and receive $250, it is straightforward to state that "you've made $250". However, does that $250 indicate a good return? The answer varies according to the amount of capital that was invested, the length of time the trade was open, the risks that were assumed, and what eventually happened to the underlying stock. It is here that the concept of return on investment (ROI) proves useful since ROI places a trade's profit in context by comparing it with the capital that was used to achieve that return. A ROI Calculator can carry out this comparison a lot more quickly, especially when you are looking at several cash-secured puts, covered calls, or Wheel Strategy possibilities. The key thing to note is that ROI is a tool for measurement, not one that can predict the future...