A 2% return in 30 days sounds modest and annualizes to something that sounds spectacular. Here is how the math works and why it needs caution.
To compare a 30-day trade with a 45-day trade, or a $20 stock with a $200 stock, you need a common yardstick. The usual choice is return on the capital reserved, expressed as an annualized rate. The math is simple, but the interpretation takes care.
This gives a simple annualization, which assumes you can repeat the same trade every period without compounding. It is the figure most platforms and traders quote.
Sell a $50 put for $1.20 with 30 days to expiration.
That box is the one-contract version of the formula. For contracts, fees, and the stock price, use the cash-secured put calculator. For a call measured against your cost basis, use the covered call calculator. For the whole cycle, use the wheel strategy calculator.
For covered calls, use your cost basis as the capital figure, or the current market value of the shares if you want to measure the return on what is actually tied up today. Using your effective cost basis versus the current price gives two different, both valid, answers, so be clear about which one you are quoting.
The honest use of annualized return is for comparing candidate trades, not for predicting what your account will earn. A better measure of real performance is your realized return over a full period, including the losing wheels. See position sizing for how to think about how much capital each trade should use.
There is no meaningful universal benchmark. Higher annualized figures generally reflect higher risk. Compare against the risk of the underlying rather than against a fixed target number.
Yes, for an accurate picture. Subtract fees from premium before computing the return, especially on low-priced contracts where fees take a larger bite.
You can, but it assumes you reinvest everything at the same rate indefinitely, which overstates what is realistic. Simple annualization is more conservative.
OptionsLoop links each cash-secured put to its assignment and each covered call to the shares it was written against, so a wheel's real cost basis and total return show up as one number instead of a pile of separate trade rows.
Try OptionsLoop freeFor educational purposes only, not financial advice, and not tax or legal advice. Options trading involves substantial risk, including the potential loss of your entire investment. OptionsLoop is a tracking tool, not a broker or investment adviser, and does not recommend specific securities or strategies. Examples use made-up prices for illustration.