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| Return Calculations Explained |
The calculation for the return on each position is based on the net credit the trade generates and the margin required for trading it. Of course, if any trade in the position has to be closed early that will change the ultimate credit that the position generates. Return numbers do not include commissions, SEC fees, or margin interest/trading.
Meridian, Centium & Optium Return Calculation (Neutral Spread Strategy)
The formula for calculating the iron condor position return is...
% Return = ( Ultimate Net Credit / ( Margin Required - Original Net Credit) ) * 100
The ultimate net credit can only be known when the trades are all closed or expired worthless since it is based on the opening price for all options and adjusted by the closing price.
For example...
We buy to open a put, XXXAA with a strike price of 500 for $0.60
We sell to open a put, XXXZZ with a strike price of 510 for $0.95
We sell to open a call, XXXFF with a strike price of 550 for $0.70
We buy to open a call, XXXHH with a strike price of 560 for $0.20
We paid $0.80 to own the long options, we received $1.65 for selling the short options. The original net credit to the account is $0.85.
The margin at most brokers will be the greater of the difference between the bottom two strike prices or the upper two strike prices. In this example and for most of our trades, the difference between strikes will be the same. For this example the margin will be the 10 point difference.
If no stop losses are hit, the trades all expire worthless and we keep the $0.85 credit with no follow-up closing transactions. Were this to happen, the return would be...
% Return = ( .85 / ( 10 - .85 ) ) * 100
% Return = ( .85 / 9.15 ) * 100
% Return = 9.29 %
Stratium Return Calculation (Selling Put Strategy)
The formula for calculating the sold put position return is...
% Return = ( Ultimate Net Credit / Margin Required ) * 100
The ultimate net credit can only be known when the trade is closed or expired worthless since it is based on the opening price for all options and adjusted by the closing price.
For example...
For equity PPP which is trading at $12
We sell to open a put, PPPXX with a strike price of $10 for $0.30
Check with your broker for specific margin requirements for selling put options, we use the most conservative margin requirement based on the strike price of the put option that was sold which in this case is the strike price, $10/option.
If no stop losses are hit, the trade will expire worthless and we keep the $0.30 credit with no follow-up closing transactions. Were this to happen, the return would be...
% Return = .30/10 *100
% Return = 3%
Titanium Return Calculation (Covered Call Strategy)
Initial returns are calculated assuming the starting price and ending stock price does not change. Formulas for calculating the covered call position return are...
Start and Finish In-The-Money:
Time Value = Starting Option Value - Starting Stock Price + Strike Price
% Return = Time Value * 100 / ( Starting Stock Price - Time Value )
For example...
For equity EEE which is trading at $12.
We sell to open a call, EEEXX with a strike price of $10 for $2.30.
%Return = (2.3 - 12 + 10)*100/(2*12 - 2.3 - 10)
%Return = 2.6%
Start and Finish Out-Of-The-Money:
% Return = ( Starting Option Value ) * 100 / ( Starting Stock Price - Starting Option Value )
For example...
For equity EEE trading at $9 and closes at $9.
We sell to open a call, EEEXX with a strike price of $10 for $0.30.
%Return = (0.30) * 100 / (9 - 0.3)
%Return = 3.4%
Note: The returns we show on the home page and the initial track record page are the average returns across all trades over time. On the detailed track record pages, the returns for each individual position are shown.
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