What is return on capital (ROC) for options strategies?
Return on capital is the option premium received divided by the buying power actually held to support the position; it is the most honest single-cycle profitability metric for credit strategies.
Formula
net credit ÷ capital at riskWorked example
A cash-secured put sold at the $50 strike for $1.20 premium requires $5,000 cash collateral. ROC = $120 ÷ $5,000 = 2.4% for the cycle.
Common misinterpretation
Comparing ROC of two strategies with different capital definitions. A defined-risk vertical and a cash-secured put look very different on ROC because their "capital at risk" denominators are different (the vertical risks max-loss; the CSP ties up strike × 100).
Limitations
- Does not annualize, so cannot be compared across different time horizons without a normalization step.
- Does not capture the time-value erosion of the premium itself.
- For margin accounts, the effective capital can be lower than the cash-secured equivalent — ROC presented here is the cash-secured baseline.
Tools that use this metric
Primary references
References cite the source institution where the underlying definition or rule is published. OptionIncomeTools does not redefine standardized options terms; it ranks and presents data using widely accepted definitions.
Related glossary entries
Browse the full glossary for related definitions.
Educational only — not investment advice. See the disclaimer and methodology. Material methodology corrections are logged at corrections.