Cash-Secured Put Compounded Annualized Return
Calculates the compounded-annualized rate of return on a cash-secured put, treating the per-trade yield as a periodic return that compounds end-to-end across the year. Always slightly higher than the simple-annualized form for the same inputs.
When to use: Use when you want an apples-to-apples comparison against other compounding return measures (CAGR, EAR). The simple form is more widely cited; the compounded form is the mathematically consistent annual-equivalent rate if you actually rolled the trade continuously.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| IRR | Compounded Annualized Return | Compounded-annualized return assuming the trade is repeated end-to-end at the same yield | % |
| Today | Today's Date | Date the option is sold (trade date) | date |
| Expiration | Expiration Date | Date the option contract expires | date |
| Premium | Premium per Share | Cash credit received per share for selling the option | $ |
| Strike | Strike Price | Exercise price of the option contract | $ |
Real-Life Examples
Example 1: 51-Day Put on a $100 Strike
On April 29, 2026 you sell a 51-day put at a $100 strike for $2.50 of premium per share.
Given
Step-by-Step
Compounded form: 19.33% vs. 17.89% simple — the compounding gap widens as the per-trade yield grows.
Example 2: Weekly Put on a $50 Strike
On April 29, 2026 you sell a 7-day put at a $50 strike for $0.40 of premium.
Given
Step-by-Step
For short-dated, frequently-rolled trades the compounded form diverges sharply from the simple form (51.5% vs. 41.7%) — a reminder that neither figure is a guaranteed return.
Frequently Asked Questions
Because (1 + r)^n grows faster than r × n for any positive r and n > 1 — Jensen's inequality applied to the exponential function. The two converge as the per-trade yield approaches zero.
When comparing against any other annual return that already compounds — a CAGR on a stock, an EAR on a bond, a hurdle rate. The simple form is the dominant convention in options screeners and broker tools, so use that when you want comparability with industry quotes.
Yes — implicitly. The compounded form assumes each trade's premium gets folded back into the next trade's capital base. In practice cash-secured puts have a fixed strike, so you are not literally reinvesting premium; the compounded number is best read as a mathematical yield equivalent, not a guaranteed reinvestment return.