If I have an option that has a net credit and results in a positive expected value (based on my own estimates of volatility), how do I calculate an ROI in order to compare with a net debit credit options?

  • Option 1: Net Credit +5 EV +1
  • Option 2: Net Debit -1 EV +10
  • Option 3: Net Credit +5 EV -1

Is there another metric that is better equipped to make the comparison between these? Is there information that is missing that is needed to make this comparison?

  • $\begingroup$ How do you compute the "expected value" of your option? Is it not the price you should be considering? Also how do you define net credit? $\endgroup$ – SRKX Nov 20 '16 at 15:43

To calculate ROI of an option(s) sold for a credit you divide the credit received by margin you must maintain to carry that position.Then do not forget to annualize that number.

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  • $\begingroup$ An example would be great here because this is difficult to understand. $\endgroup$ – SRKX Nov 20 '16 at 15:40
  • $\begingroup$ For example: stock XYZ at $$95 and you sell 100/110 credit call spread for $$1 with 1 mon to expiration. I am using Reg-T margin , which is for spreads is just the difference between strike prices. Hence your margin is $$10. So your return is $$1/$$10 = 10% a month. Annualized to a 120% a year. $\endgroup$ – baerrus Jan 30 '17 at 19:13

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