In this article, you will discover the art of optimizing put-option selling. Learn to seize profits efficiently through early trade closures using the power of our annualised return cash-secured put calculator. Uncover strategies to manage cash-secured puts for maximum returns and make informed decisions on when to exit.
Swift Management: Learn to close trades efficiently for maximum profit, enabling quicker capital redeployment.
Annualised Metric: Use the annualised return calculator below to identify prime moments for when to buy to close a cash secured put option.
Personal Strategy: Adopt personalised exit rules, like closing at 50%, 85%, or 90% profit, in line with your trading style.
Table of Contents
What Is The Best Outcome When Selling Puts?
The ideal outcome when selling cash secured puts is that they expire worthless, and you can walk away from the trade with a tidy profit.
This happens, of course, if the underlying stock is trading above the strike price at expiration.
But, as savvy option sellers that we are, the reality is that we want to manage our put selling as efficiently – and as safely – as possible. This means, we want to find ourselves in a position where we can exit the majority of our trades with maximum profit in an abbreviated time frame.
This allows us to free up our capital after banking most of the profits and then go ahead and find another opportunity to put our money to work elsewhere. By doing so, we can continually generate more income and grow our investment portfolio faster.
Think of it like this:
Imagine you have a job where you’re expected to work 40 hours a week but if you finish all your tasks in just 10 hours, then your boss doesn’t make you stay the full 40 hours.
Similarly, in option trading, if you’ve already made a significant part of your potential profit and have the opportunity to close a position early, it’s like leaving work early after completing your tasks.
You still get the same pay (profit) as if you had stayed the whole time.
When Is The Right Time To Close A Cash Secured Put Option?
If you can lock in the bulk of your maximum potential profits in an abbreviated period, it’s often going to make sense to close a trade early.
One of the most important metrics to look at to determine when to buy to close early is by looking at the annualised rate of return.
Since selling puts, the annualised return calculator is my favourite metric to look at.
It’s an awesome method to monitor how well you’re doing and speed up the use of your money, which also means your portfolio can grow faster. Sounds good right?
How Do You Calculate Annualised Rate of Return On Your Cash Secured Puts?
In simple terms, you want to determine your total return on investment and then convert it into an annualised rate.
(BOOKED INCOME / CAPITAL NEEDED)*(365/TIME IN THE TRADE)
Take the booked income from selling the put option. Divide this by the amount of capital needed to underwrite the trade. This is the total ROI percentage.
Then take that percentage and multiply it by 365 (days in a year) and divide by how long the trade was open for. This then gives you the annualised return on investment.
To help, I created this annualised return calculator below. The put options calculator provided on this webpage enables individuals to accurately calculate their annualised return for cash secured put strategies, empowering them to master the art of put option selling and make informed decisions for maximizing profits and executing intelligent exits.
Simply enter your option trade details in the calculator and it will tell you what the annualised return is by closing early.
Annualized Return Options Calculator
Total Days Held:
Annualized Return: %
The cash secured put calculator is a valuable tool for investors looking to master put option selling and calculate their annualised return with ease and precision.
So, to recap, you don’t need to wait until your option expires to close out a trade. You should always be keeping an eye on the annualised return whilst your trade is in play.
When you are selling puts, ideally you want to be operating with a desired annualised return in mind. I typically target an annualised return of 15-25%, which I think is pretty achievable on a consistent basis.
It’s important as well to monitor your annualised return on every completed option trade or within a campaign where you conduct multiple trades on the same stock.
Options Wheel Tracker Sheet
Now Let’s Go A Step Further In Calculating The Annualised Return
Unveiling an additional layer of brilliance within the annualised metric, this approach distinctly highlights the best moment to gracefully bow out of a triumphant trade before expiration.
Drum roll, please…
This involves calculating the annualised return on the capital left still in the trade. Since you are buying to close early, there is still some premium left on the table.
Here’s a trade example:
Let’s say you sold to open the ABC Nutrition $100 cash secured put option for $2 per share expiring in 30 days.
Capital required = $10,000 (100 shares @ $100)
This gives you an annualised return of 24%, not bad I am sure you will agree!
Now let’s say ABC Nutrition gaps up and trades much higher and after just 7 days in the trade you can buy to close your put back for just $.50 per share.
$.50 x 100 shares = $50 to buy to close.
Now if we employ the annualised return calculator on the above, it’s like gaining x-ray vision, revealing insights that were previously hidden from view.
The new annualised return from this trade (previously 24%) is now a staggering 78.2%!
Now, what if I showed you another cool feature to the annualised return calculator.
You can also determine the amount of money you’re NOT capitalising on and decide whether it’s worthwhile to wait and stay in the trade for longer.
For instance: in the above trade we are buying to close the trade early for $50 in total.
The trade still has another 23 days left until expiration.
So, we have $10,000 of our capital locked up for another 23 days to gain the final $50 left in the option contract.
You have to ask yourself, is this worth it or should I close this and move on to a better opportunity?
Well here’s an easy way to decide.
Input the numbers in the calculator below and it will tell you the annualsied return left in this trade.
Annualised Return Calculator For Profit Left On The Trade
Try Enter Yourself:
- Total Premium Income Left On The Table: $50
- Capital required / at risk = $10,000
- Days Left Until Expiry = 23
This gives us an annualised return of 7.93% on our capital left in this options trade.
Can you find a better put selling opportunity over the next 23 days with your $10,000 that will pay you more than the 7.93% annualised return left in this trade?
If the answer is YES, you should buy to close and move on to another put selling opportunity.
What About More Hard And Fast Rules For Buying To Close A Cash Secured Put
There are also more definitive rules that you can follow.
I know some option sellers that buy to close when they have gained 50% of the profits in an abbreviated time period.
Others close when they have hit 85%, and some even wait to achieve 90% of their profits.
The beauty of options trading is that it allows you to adopt your own style and employ your own trade management rules.
Whilst you are banking less premium income closing your trade early, it does mean you can pull the trigger again on another trade within the same time period. This allows you to book more profits as a result and grow your overall account size faster.
One thing to also consider. When you have a trade open for longer in order to collect the final amounts of premium, you should run the numbers on the calculator above and if the annualised yield left on the trade is low, it might not make sense to have your capital at risk for such smaller annualised returns.