How I Calculate Performance
To prevent confusion between gross premium, options profits, share price movement, and new deposits, this page outlines the exact methodology used to calculate and report all performance numbers on this site.
1. Portfolio Return (Percentage Gain)
The annual percentage return reflects the total account performance. This includes changes in the value of held stock positions, changes in the value of open options contracts (unrealized P&L), and all closed trade outcomes (realized options premium and option P&L).
⚠️ Deposits (contributions) and withdrawals are strictly excluded from the percentage return calculations. New cash added increases the absolute account value, but is not counted as a return on investment.
2. Premium Collected vs. Realized P&L
It is critical to distinguish between options premium collected and actual trading profits:
- Premium Collected: The gross premium received when selling (opening) an options contract (Sell to Open). This cash is deposited into the account immediately, but does not represent profit until the option is closed or expires worthless.
- Realized Options P&L: The actual final gain or loss once a contract is closed (Buy to Close) or expires. For example, if I sell a put for $100 and buy it back for $40, the premium collected is $100, but the realized options profit is $60.
3. Share Price Appreciation
The increase or decrease in the market price of stock shares held in the portfolio. For a buy-and-hold portfolio enhanced by options, share price appreciation remains the primary driver of overall account equity changes. Option premiums are sold around these core stock holdings, not to replace them.
4. Contributions (New Capital)
New capital deposited into the brokerage account. In my updates, I document weekly contributions (e.g., $600/week) which increase the cash balance available for stock purchases or put collateral. These deposits are excluded from percentage-return calculations.
5. S&P 500 Comparison
The S&P 500 returns cited on this site represent the **S&P 500 Total Return Index**, which includes reinvested dividends. This provides the most accurate and intellectually honest comparison to my portfolio return, which also includes dividend payouts and option premium reinvestment.