Calculating your return on capital (ROC) for a cash-secured put is straightforward: divide the premium you collected by the capital you had to set aside to secure the trade, then annualize it if you want an apples-to-apples comparison across different trades.

Here's what that looks like with a real example. Say you sell a cash-secured put on AAPL at a $170 strike, collecting $1.85 in premium with 30 days to expiration. Your broker requires you to hold $17,000 in cash to cover the potential assignment (100 shares × $170 strike). Your raw ROC is simply $185 ÷ $17,000 = 1.09%. That's your return for the 30-day period.

Why annualizing matters

That 1.09% sounds small until you annualize it. Multiply by (365 ÷ 30 days) and you get roughly 13.2% annualized. Suddenly that trade looks a lot more interesting. Annualizing lets you compare a 7-day trade against a 45-day trade without getting confused by the different timeframes. A 7-day trade collecting $0.60 on a $100 strike might actually beat a 45-day trade collecting $2.00 on the same strike — you can't tell until you annualize both.

The formula written out cleanly:

Annualized ROC = (Premium Collected ÷ Capital Required) × (365 ÷ Days to Expiration)

That's it. No magic involved.

What counts as "capital required"

This is where traders sometimes get confused. Your capital required is the strike price × 100, minus the premium you collected. Some traders use the gross strike price, others net it out. I prefer netting it because that's the actual maximum cash you'd be on the hook for if assigned. In the AAPL example above: ($17,000 − $185) = $16,815 as your true capital at risk. The difference is small, but on a higher-premium trade it starts to matter.

If you're trading in a margin account and your broker only requires 20% of the strike as collateral, your ROC numbers will look dramatically higher — but that's not a cash-secured put anymore, that's a naked put with margin. Make sure you're comparing like with like.

A second example to make it stick

Let's try NVDA, which has higher premiums due to its volatility. You sell a 30-day put at a $850 strike and collect $12.50 in premium. Capital required: $85,000 gross, or $83,750 net. Raw ROC: $1,250 ÷ $83,750 = 1.49%. Annualized: 1.49% × (365 ÷ 30) = about 18.2%.

Compare that to the AAPL trade at 13.2% annualized. NVDA wins on paper — but you're also taking on more volatility and a much larger capital commitment. ROC is a useful filter, not the whole picture.

Where traders mess up this calculation

The most common mistake is forgetting to account for commissions. If you're paying $1.00 per contract, that $185 premium on the AAPL trade becomes $184. Tiny, but it compounds across dozens of trades per year. Another mistake is calculating ROC on a trade and then letting it sit idle for two weeks after expiration before rolling into the next one. Your annualized ROC assumes you're redeploying capital immediately. If your cash sits uninvested for 10 days between trades, your real-world annualized return drops meaningfully.

A third issue: people calculate ROC on the premium alone and forget about the tax treatment. Short-term options premiums are typically taxed as ordinary income. Your 13.2% pre-tax annualized return might be closer to 9% after taxes depending on your bracket. Worth keeping in mind when you're comparing this to other strategies.

Using a calculator to speed this up

Doing this math manually for every trade gets old fast, especially when you're screening multiple tickers and strikes. Our free premium calculator on the site lets you plug in the strike, premium, and days to expiration and spits out both raw and annualized ROC instantly — useful when you're trying to compare three different AAPL strikes side by side before placing a trade.

The practical takeaway

Pick one trade you're considering right now — any ticker, any expiration. Run the annualized ROC formula on it before you place the order. Then ask yourself: if I could replicate this trade 12 times per year with no gaps, would that return justify the capital tied up? If the answer is yes, and the strike is at a price where you'd be comfortable owning the stock, that's a trade worth taking. If the annualized ROC comes out below 10% on a volatile stock where you're taking real assignment risk, you might want to look at a different strike or a different underlying altogether.

The math takes 30 seconds. Get in the habit of running it every time.