Credit Spread ROI

September 4th, 2015, 01:16 AM

So, simple question just want to make sure this correct. On a credit spread the basic calculation for ROI would be...

[Credit received] / ([Diff between strikes]+[Commission])

So on a $20 credit for a $1 spread with $6 total commissions.

.20 / (1+.06) = 18.8% ROI

Is this sufficient in calculating, or am I missing something?

Thanks,

September 5th, 2015, 09:29 AM

You don't add commissions, you minus that off the credit.

$20 - $6 = $14 net.

Max loss = diff between strike - initial credit received
= $100 - $20 (not net here or you would be double counting commission)
= $80

$14/$80 = 17.5%

Assuming you use max loss as margin, and calculating return on margin. In case of loss, you have to incur another round of commission, assuming you didn't count it in $6. So it changes there again. If you already factored round trip but end up profiting expiring worthless, it changes again to higher ROI.

September 7th, 2015, 02:38 AM

Got it, thanks for the clarification. Yes, the $6 would be total commissions on TOS ($1.50 per contract). I've been setting trades to close at 70% of max profit, so I count on having to pay to close out.

Credit Spread ROI

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Credit Spread ROI