Annualized Option Yield Calculator
When comparing covered calls or cash-secured puts with different expirations, it is essential to express returns on an annualized basis. A 3% return in 30 days is very different from a 3% return in 90 days. The simple annualized yield divides the premium by the collateral to get the period return, then multiplies by 365 divided by the days to expiration to scale to annual. The compounded version uses exponentiation to account for reinvestment. This calculator provides both, along with the period return (not annualized) and the dollar premium per contract. Collateral is your cost basis (covered calls) or the strike price (cash-secured puts).
Annualized yield formula
Period Return = premium / collateral
Simple Annualized Yield = (premium / collateral) * (365 / days)
Compounded Annualized Yield = (1 + premium/collateral)^(365/days) - 1
Premium per Contract = premium * 100
Simple annualization is the industry convention for options yield reporting. Compounded yield assumes you can reinvest the premium at the same rate each period, which is an optimistic assumption.
Comparing option trade yields
- Use annualized yield to compare a 15-day covered call at 0.8% to a 45-day covered call at 2.1%: divide each by days and multiply by 365 to compare fairly.
- Higher yield often comes with higher risk: shorter expirations have more gamma risk; higher-strike covered calls have less downside protection.
- Monthly compounding analogy: a 3% monthly yield does not equal 36% annual; compounded it equals (1.03)^12 - 1 = 42.6%.
- Commissions reduce yield: factor in per-contract commissions especially for small accounts or low-premium trades.
- The annualized yield ignores the opportunity cost of the collateral and is only valid if the option expires worthless (full premium retained).
Frequently asked questions
What is annualized option yield?
Annualized option yield is the return on a premium-selling option strategy (covered call or cash-secured put) expressed as an annual rate. It allows comparisons between options with different expirations and collateral requirements on a standardized basis.
How is annualized yield calculated?
Annualized yield = (premium / collateral) * (365 / days to expiration). For example, a $1.50 premium on a $50 strike put with 30 days to expiration gives (1.50/50) * (365/30) = 36.50% annualized. This is a simple (not compounded) annualization.
What is the collateral for a covered call vs a CSP?
For a covered call, the collateral is your cost basis per share (what you paid for the stock). For a cash-secured put, the collateral is the strike price per share (the cash you set aside). Both represent the capital at risk for the trade.
What is the compounded annualized yield?
Compounded annualized yield = (1 + premium/collateral)^(365/days) - 1. This assumes the premium is reinvested at the same rate for each period, which is an upper-bound estimate. The simple method is more conservative and widely used in practice.
What is a realistic annualized yield for covered calls?
Realistic covered call yields vary widely by stock volatility and strike selection. Typical annual yields range from 5% to 20% for broad market ETFs and large-cap stocks. Higher volatility stocks can yield more, but also carry higher assignment risk.
Official sources
- Options Clearing Corporation: theocc.com.
- CBOE Options Institute: cboe.com/education.
- SEC Investor Education: sec.gov/investor.
Reviewed by the CalculatorHub team, edited by James Graham, 15 June 2026. See our methodology.