Use this when you want to compare premium collected against reserved collateral, break-even, and annualized return on a cash-secured put.
Use this after assignment to see premium collected, adjusted cost basis, maximum cycle profit, and how much return the call adds to the stock value you already own.
Warning: the call strike is below adjusted cost basis. If shares are called away there, the cycle closes at a realized loss.
The calculator is a math tool, not a trade filter. High premium still needs structure, acceptable assignment, and a name worth owning.
Premium is not the thesis
Before the formulas, one framing note.
Premium is a byproduct of three things: the time on the contract, the implied volatility of the stock, and how close your strike is to the current price. It is not a signal. It is not edge. It is compensation for the risk you are absorbing.
High premium does not mean a good trade. It means the market is pricing in elevated uncertainty. The premium is the market's quote for that risk. You can accept it or decline it. Understanding the math is how you decide which.
The multiplier every beginner forgets
One equity options contract controls 100 shares. Always. Not 10, not 1.
This is the number that turns a $0.85 premium per share into $85 per contract. It is the same number that turns a $25 strike into $2,500 of collateral. Every formula below uses it.
Cash-Secured Put: the formulas
Premium collected
premiumPerShare × contracts × 100 − fees
A $0.85 premium on 2 contracts with no fees: $0.85 × 2 × 100 = $170
Collateral required
strikePrice × contracts × 100
A $25 strike on 2 contracts: $25 × 2 × 100 = $5,000
Break-even
strikePrice − premiumPerShare
Strike $25, premium $0.85: $24.15
This is your effective assignment price. If the stock is above this at expiration, the position was profitable.
Return on collateral
(premiumCollected / collateral) × 100
$170 / $5,000 × 100 = 3.4%
Annualized return
returnOnCollateral × (365 / daysToExpiration)
3.4% × (365 / 32) = 38.8% annualized
Annualizing lets you compare a 12-day trade against a 40-day trade on equal terms. It is not a projection. It is a normalization tool.
Covered Call: the formulas
Once assigned, the cost basis becomes the reference point for everything.
Premium collected
premiumPerShare × contracts × 100 − fees
Adjusted cost basis
costBasis − premiumPerShare
If you were assigned at $25 on the CSP above, your cost basis before the covered call is $24.15. Each covered call premium reduces it further.
Called-away value
callStrike × contracts × 100
Max cycle profit
((callStrike − costBasis) × contracts × 100) + premiumCollected
This is the best possible outcome: shares get called away above your cost basis and you keep the premium.
Return on stock value
(premiumCollected / (costBasis × contracts × 100)) × 100
Annualized return
returnOnStockValue × (365 / daysToExpiration)
The covered call constraint that matters
Your call strike must be above your adjusted cost basis.
If it is not, the best possible outcome, shares get called away, locks in a realized loss. The premium does not fix that. It decorates it.
Before selling any covered call, check: if assigned at this strike, does the cycle close profitably? If the answer is no, the strike is wrong.
Why the 50% rule changes this math
Holding to expiration is not the default.
If you can close a position for 50% of the premium collected before 50% of the time has elapsed, the remaining premium rarely justifies the remaining exposure. Closing early frees the collateral, restarts the cycle, and increases the number of complete rotations per year.
The annualized return formula only looks good on paper if the capital stays deployed. Velocity matters. → The 50% Rule
What annualized return does not tell you
It does not tell you whether the trade is good.
A 90% annualized return on a stock with IV Rank above 80 and earnings in 11 days is not a good trade. It is a high number attached to a position the market is explicitly pricing as dangerous.
The return formula measures efficiency. It does not measure conviction in the underlying. That part you have to supply yourself before you open the chain. → Implied Volatility and the Wheel
FAQ
How do you calculate option premium collected?
Premium collected = premium per share × contracts × 100 − fees. One contract controls 100 shares.
How do you calculate collateral for a cash-secured put?
Collateral required = strike price × contracts × 100.
How do you annualize option premium return?
Annualized return = (premium collected / collateral) × (365 / days to expiration) × 100.
How do you calculate break-even on a cash-secured put?
Break-even = strike price − premium per share.
Is high option premium always better?
No. High premium reflects elevated implied volatility, which means the market is pricing in elevated risk. Premium is compensation, not edge.
Wizolver.log documents a personal trading process and is provided for educational and informational purposes only. Nothing here is financial advice or a recommendation to buy or sell any security. Trading options involves significant risk. Do your own research.