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Credit Spread ROI


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  #1 (permalink)
linker33
Boise, ID / USA
 
Posts: 9 since Apr 2015
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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,


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  #3 (permalink)
k20a
TPE, TW
 
Posts: 49 since Jul 2014
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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.


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  #4 (permalink)
linker33
Boise, ID / USA
 
Posts: 9 since Apr 2015
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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.


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Last Updated on September 7, 2015


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