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Are Your Options Trades Actually Profitable? (The 20% Benchmark)
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ticker lesson
Breakdown
0:00lesson
Return on capital in options trading
- Focus on return on capital metrics
- Compare similar products with different return on capital
- Discuss credit side (selling premium) and debit side (buying premium)
- Real-time application vs academic level
1:58IBIT· ticker
IBIT — high return on capital
- IBIT trading at $43 with 50% implied volatility
- Quick rule of thumb: 50%+ implied volatility = good return on capital
- Sell 40 strike option for $300
- Buy power requirement: $1,700
- 20% return on capital benchmark
3:57lesson
Debit side strategies for return on capital
- Vertical spreads allow risk-reward manipulation
- 44-46 call spread: $83 risk, $120 max profit
- Sliding call option out of the money improves return on capital
- Reward-to-risk ratios: 2:1, 3:1, 4:1
5:57TLT· ticker
TLT — low return on capital
- TLT is $80, twice as expensive as IBIT
- Sell at-the-money option for $150
- Buy power requirement: $1,500
- Credit collected: $1.46
- Low return on capital due to high risk and low premium
8:00TLT· ticker
TLT — debit strategies for return on capital
- TLT used for debit trades with low implied volatility
- Zebra strategy: buy two in-the-money puts, sell one at-the-money put
- Debit trade: $500, control 100 deltas
- Implied volatility: 14%
- Low implied volatility makes debit trades more leveraged
10:03lesson
Return on capital benchmarks and strategies
- 20% return on capital benchmark for premium selling
- Implied volatility ≥ 40-50% for high return on capital
- Debit trades allow risk-reward manipulation
- Debit paid = max loss
- Flexibility on debit side for high return on capital
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