See Martinghoul's reply. The interest rate for 1 month is ~1/12% if it is annualized at 1%.
Options premium income. How much is too little?
- Thread starter allamut2009
- Start date
Sadly, even a t-bill isn't strictly speaking risk free these days...Ah, what a wonderful thing it would be to have 12% per year, risk free
@allamut2009 I think you need to start from scratch again if you don't know how to calculate a risk-free rate...
1 month Tbill at 1% annualized is about 0.08% for the month....
1 month Tbill at 1% annualized is about 0.08% for the month....
Robert Morse
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In my opinion, aiming for 1-2% premium per month is not enough to justify the risk. Actually making 1-2% per month is a different story - but that would include the losers. So if you aim for say 5% per month, and have 70-80% winning ratio, meaning 9 winning months per year. and lest say you make 5% per month in a winning month and lose 7-10% in a losing months - that would put you around 20-25% annual return. Depending on the level of risk, that's not bad.
But if you aim for even 2% per month, even with 80% winning ratio it would be tough to make money.
But if you aim for even 2% per month, even with 80% winning ratio it would be tough to make money.
Depending on your strategy, selling option for premium income is NOT riskless. It can be actually very risky and yet without the potential growth from buying options. So it's not prudent to compare option premium selling to investing in T-Bills.
well now 1-2% monthly premium income seems like a huge money
Nobody is mentioning how you calculate return in option selling. I use margin required not account size. I trade options on futures to get lower SPAN margin requirements. You should look at weekly strategies for more yield opportunities. ES options now expire monday, wednesday and friday.
I look at notional (or specifically max theoretical delta). That kind of represents the long/short equivalent and will understate your returns (which is the bias you should have).
That's a good point. I personally calculate it based on absolute risk (the most I could lose in the worst possible scenario). Trading credit spreads, it's incidentally the margin requirement (total spread minus credit).