Options math 101 - Net returns from an unexercised put

guru said:
Guys, sorry I don’t speak your lingo, but I’m always willing to learn so I’m googling, but the only related info I found is a website selling a newsletter on how to make 48% annually selling naked puts! :)
Isn’t it creative accounting to claim that you’d make your investors 48% return just by switching ROI for ROE?

Though I also found more financial-type discussion here:
https://money.stackexchange.com/que...return-ror-when-buying-and-selling-put-option
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For the written put, even though your broker may only require 30% collateral in a margin account, mentally treat them as cash-secured. Strike less premium is your true CaR. If the stock goes to zero by expiration, that's what you're on the hook for. You could just compute based on the 30% collateral required, but in my view that confuses cash/collateral needs with true risk.
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I find Greeks much more confusing!
 
ffs1001 said:
Your total profit (assuming TSLA price never reaches 1505) is $9,498.

Your margin is 50,147+45,589. But remember that the maintenance margin will change every day and will go up if TSLA falls.

Your ROI will be based (roughly) on the above 2 figures. As a dirty figure, it's around 10%

You didn't ask for this advice, but I cannot resist - pls don't do this unless you have $145K sitting in your account, and are genuinely happy to own TSLA at this price.
Your short put is ATM right now, and TSLA can easily fall 200 points before you can say "What the hell was I thinking?"
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10% using your calculation is where I am getting at across my watchlist!
It seems to be a reference in the market.
 
tonyf said:
I find Greeks much more confusing!
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Wait till your broker actually shows you negative equity for selling puts or calls (taking on risk).
Today Interactive Brokers wants to give me negative -$12,456 margin/equity, just for selling 5 naked calls on SPX:
upload_2020-7-24_9-59-32.png


They'd lock me in a psych ward if I'd try to calculate my ROE or even ROI on this :)
 
My question is not that much 101 after all!
Options have such a bad reputation and making simple components such as what I am raising here so murky does not help!
 
Not murky, but multi-faceted. Options traders can definitely be accused of mental masturbation.

Here is the bottom line:

If you were to fund an account and be able to do this one trade, all you would have to put up is 50,147 to enter the trade. Without it, your order will be rejected.

That is the initial equity for your calculation.
 
xandman said:
Not murky, but multi-faceted. Options traders can definitely be accused of mental masturbation.

Here is the bottom line:

If you were to fund an account and be able to do this one trade, all you would have to put up is 50,147 to enter the trade. Without it, your order will be rejected.

That is the initial equity for your calculation.
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Yes.
 
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