credit spread return on capital
- Thread starter sss12
- Start date
You can use whatever floats your boat. At the end of the day it doesn't matter,
What counts is the P/L at the end of the year.
- Premium versus account balance.
- Premium versus maximum loss.
- Premium versus margin required.
What counts is the P/L at the end of the year.
Thanks for responding. But what I was refering to is determining if there is enough premium in an individual trade with respect to POP=1-ROC, and how ROC is calculated.....anyone else ? ThanksYou can use whatever floats your boat. At the end of the day it doesn't matter,
- Premium versus account balance.
- Premium versus maximum loss.
- Premium versus margin required.
What counts is the P/L at the end of the year.
IMO ....... You can't calculate ROC with individual trades. ROC is calculated over a period of time, like 1-year.
- July 2015 $10,000 in trading account.
- July 2016 $11,000 in trading account.
- 10% ROC after 1-year.
Keep it simple.
Try this:
http://www.wikihow.com/Calculate-Return-on-Capital
IMO it should be "Premium versus margin required" as was also said in one of the other postings.
Of course this is for the single trade, but in the end you have to calc the relation of the final value to the initial value of the period...
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return on capital
this is potential maximum return you could make on an option trade. It's calculated by taking the maximum potential profit and dividing it by the margin requirement of the position. For example, if you sell a 100/105 call vertical for 2.00 credit, the return on capital would be the max profit of $200 divided by the margin requirement of $300. That yields a max return on capital of 66%.
So this is Tasty Trades formula. They are using 2/5-2=66%. Isn't this using the 2 credit twice. It greatly alters the pop=1-roc concept .....thoughts ?
this is potential maximum return you could make on an option trade. It's calculated by taking the maximum potential profit and dividing it by the margin requirement of the position. For example, if you sell a 100/105 call vertical for 2.00 credit, the return on capital would be the max profit of $200 divided by the margin requirement of $300. That yields a max return on capital of 66%.
So this is Tasty Trades formula. They are using 2/5-2=66%. Isn't this using the 2 credit twice. It greatly alters the pop=1-roc concept .....thoughts ?
For a single trade, I would use Premium versus margin required.
Maybe it's your own flawed interpretation as the maths is so basic and simple: 200/300=66.67%
And it seems you are mixing profit calculation with probability calculation. Where have you got that "pop=1-roc concept" stuff from?
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Ha, LOL. Let me see if I remember correctly Marsman. You are the know-it-all Euro who can not even fund a live account and has never done a trade ? correct ? If so, has some restraint in responding to threads that you know nothing about, as is quite evident from your multiple ignorant posts on ET.
The question to anyone (although 1245 answered, thanks) was if to subtract the premium from the spread in the denominator of the premium/spread width ROC calculation.
Don't talk BS man, fact is you are not able to calculate a simple thing... Kindergarten-level your postings...