Annualized Option Return Calculator
Selling options for premium, whether a covered call or a cash-secured put, generates a return over a short holding period that is hard to compare without annualizing. This calculator takes the premium received per share, the capital committed per share (the strike for a cash-secured put or the cost basis for a covered call), the contract multiplier, and the days held, then returns the period return, the simple annualized return, and the compounded annualized return so you can compare trades of any duration on a yearly basis.
Annualized return formula
Period return = premium per share / capital per share
Simple annualized = period return * (365 / days held)
Compounded annualized = (1 + period return) ^ (365 / days held) - 1
All shown as percentages (* 100)
The multiplier cancels out of the ratio because it scales both premium and capital equally, so the percentage return is the same per share or per contract.
Using the result
- For a cash-secured put, use the strike price as the capital committed per share.
- For a covered call, use your stock cost basis as the capital committed per share.
- Simple annualizing assumes no reinvestment; compounded assumes repeated reinvestment.
- Shorter holding periods produce larger annualized figures from the same period return.
- Annualized return is a comparison tool, not a guaranteed forward yield.
Annualized option return: frequently asked questions
How do you calculate the return on a sold option?
The period return is the premium received divided by the capital committed. For a cash-secured put, capital is the strike price times the multiplier; for a covered call, it is the stock cost basis. Premium divided by that capital gives the return for the holding period, before annualizing.
How is the option return annualized?
Annualized return scales the period return to a full year. The simple method multiplies the period return by 365 divided by the days held. A compounded method raises one plus the period return to the power of 365 divided by days held, then subtracts one. This calculator shows both.
Why use annualized return for options?
Options often have short holding periods, so a 2 percent return over 30 days is very different from 2 percent over a year. Annualizing puts trades of different durations on a common yearly basis so you can compare a 30-day put against a 45-day call against a buy-and-hold yield.
What is the difference between simple and compounded annualizing?
Simple annualizing assumes you earn the same period return repeatedly without reinvesting the gains, scaling linearly. Compounded annualizing assumes each period's return is reinvested, so returns grow geometrically. Compounded is higher when the period return is positive and the period is short.
Does this guarantee the annualized return?
No. Annualized return is a theoretical figure assuming you could repeat the same trade for a full year, which markets rarely allow. It also ignores assignment, early exit, commissions, and the risk that the option finishes in the money. Use it for comparison, not as a promised yield.
Official sources
- U.S. SEC Investor.gov: Compound interest and annualizing returns.
- The Options Clearing Corporation (OCC): Standardized options education.
Reviewed by the CalculatorHub team, edited by James Graham, 17 June 2026. See our methodology.