How to use the covered call and cash-secured put return calculator
- Choose a covered call (you own the shares and sell a call) or a cash-secured put (you set aside cash and sell a put).
- Enter the stock price now, the strike price, the premium per share and the number of days until expiration.
- Enter the number of contracts. Open the advanced options if your contract does not cover 100 shares or you want to subtract trading fees.
- Read the return for the period, the annualized figures, the break-even price and what happens if the option is exercised.
Formula
net premium = premium per share x shares - fees
capital = stock price x shares (call) or strike x shares (put)
period return = net premium / capital
annualized, simple = period return x 365 / days
annualized, compounded = (1 + period return)^(365 / days) - 1
The break-even price is the stock price less the net premium per share for a call, and the strike less the net premium per share for a put. If a call is exercised, the return also includes the gain or loss from the stock price to the strike.
A covered call on a $50 stock
You hold 100 shares at $50 and sell one call with a $52 strike for $1.20 a share, expiring in 30 days. The premium is $120 on $5,000 of capital, a return of 2.40 percent for the 30 days. Scaled by 365 / 30, that is 29.20 percent simple, and compounded it is 33.45 percent.
The break-even price is $50 - $1.20 = $48.80. If the stock ends at or above $52 and the shares are called away, you keep the premium and a gain of $2 a share, which is 6.40 percent of the capital, or $320 in all. If the stock ends below $48.80 you lose money on the shares, which the premium only partly offsets.
What the annualized figure means
Annualizing multiplies a short-term return up to a year. It is a way to compare trades of different lengths on one scale, not a prediction. It assumes the same premium would be available again and again, which is rarely true, and it ignores the periods when you hold the shares without an option.
The simple figure is the period return times 365 / days. The compounded figure assumes each return is reinvested. For short trades the compounded figure is much larger, which is a reason to treat both with care. See the Options Profit Calculator to check a single trade at any stock price.
Covered calls and cash-secured puts
A covered call caps your gain at the strike in return for the premium. A cash-secured put obliges you to buy the shares at the strike if the stock falls below it, in return for the premium, and the cash you set aside is the capital in the calculation.
For a put, the page shows the cost per share if you are assigned, which is the strike less the net premium. For several legs at once, use the Multi-Leg Option Payoff Calculator.
Assumptions and limits
- Premiums, prices and fees are examples you can change. The page does not look up any quote.
- Capital is the stock price for a call and the strike for a put, times the shares. Margin rules and brokerage requirements are not modeled.
- Fees are one total for the whole trade and must be less than the premium collected.
- Taxes, dividends, early assignment and the cost of the shares you already own are not modeled.
- This is arithmetic on the numbers you type, not advice, and nothing typed here leaves your browser.
Frequently asked questions
Why is the compounded figure so much larger than the simple one?
Compounding assumes the whole return is reinvested at the same rate every period for a year, so a 2.4 percent return every 30 days grows to about 33 percent. The simple figure just scales one period up. Neither is a forecast.
What is the return if the shares are called away?
For a covered call it is the gain from the stock price to the strike plus the net premium, divided by the capital. If the strike is below your price, that gain is negative and the return shrinks or turns negative.
Can I use this for a put I sold without setting cash aside?
The page assumes the cash is set aside and uses the strike as the capital. If you use margin the capital is different, and the percentages would be higher but so would the risk.
Does the page include commissions?
Only if you enter them. The total fee you type is subtracted from the premium before any return is worked out.