A Guide to TastyTrade Metrics

Max Profit

  • Description: The total potential profit you can achieve on the trade, which is equal to the premium collected from selling the option.
  • Formula: The premium is per share, so it must be multiplied by 100 shares per contract.
\[\text{Max Profit} = \text{Put Premium} \times 100\]

ROC (Return on Capital)

  • Description: The return on the capital risked for a single trade. It’s a quick measure of the trade’s efficiency.
  • Formula: This is calculated by dividing the max profit by the full notional value (the total value of the shares you are at risk of being assigned).
\[\text{ROC} = \frac{\text{Max Profit}}{\text{Put Strike} \times 100}\]

Annualized ROC (Linear)

  • Description: This metric projects the trade’s ROC over a full year, assuming you can repeat a similar trade with the same capital. This is a crucial metric for comparing the efficiency of trades with different durations (DTEs).
  • Formula: The ROC is scaled up to a 365-day period based on the trade’s duration.
\[\text{Annualized ROC} = \text{ROC} \times \frac{365}{\text{DTE}}\]

Annualized Return (Compounded)

  • Description: This is a more precise, academic calculation that assumes you can reinvest your earnings from each trade. This method is considered more accurate for showing the potential long-term growth of a strategy, as it accounts for the power of compounding.
  • Formula: This uses the principle of compounding interest to project the return over a year.
\[\text{Annualized Return} = \left(1 + \text{ROC}\right)^{\frac{365}{\text{DTE}}} - 1\]

Buying Power

  • Description: The amount of capital required to open and hold the trade. For a short put, this is the full notional value of the contract.
  • Formula:
\[\text{Buying Power} = \text{Put Strike} \times 100\]

Daily Profit Potential

  • Description: The average amount of profit you can expect to earn per day the trade is open. This is especially useful for comparing weekly trades.
  • Formula:
\[\text{Daily Profit Potential} = \frac{\text{Max Profit}}{\text{DTE}}\]

POP (Probability of Profit)

  • Description: The estimated probability that the trade will be profitable at expiration.
  • Formula: This is generally approximated using the option’s delta. For a short put, the probability of profit is approximately:
\[\text{POP} \approx 1 - \text{Delta}\]