Annualized return

The calculation starts with a single trade's return on capital: premium collected divided by the capital at risk, the strike price for a cash-secured put, or the equivalent obligation for a covered call, then scales that up by how many times the trade's holding period fits into a year. A strike collecting 1.2% return over 7 days annualizes to roughly 62%, since 365 divided by 7 is about 52, and 52 times 1.2% is 62%. The shorter the dated strike, the more that compounding-style scaling amplifies even a modest raw return into a large annualized figure.

Use annualized return to compare strikes across different expirations on equal footing, since raw premium collected isn't comparable between a weekly and a monthly contract without adjusting for time. It trades off directly against ITM probability: strikes closer to the money carry richer premium and a higher annualized return, but also a meaningfully higher chance of finishing against the seller. Screening usually means filtering to an acceptable ITM-probability range first, then ranking by annualized return within that filtered set, rather than chasing the single highest annualized number regardless of how likely it is to actually play out.

The figure is explicitly hypothetical. It assumes the exact same trade repeats at the exact same rate every period for a full year, an assumption that almost never holds in practice, since implied volatility, the underlying's price, and the strikes available all shift constantly. A strike showing a 90% annualized return isn't promising 90% actual annual income; it's describing what one short-dated trade's economics would extrapolate to if nothing ever changed. It also says nothing about the probability of loss on any single iteration, that's what ITM probability is for, so a very high annualized return paired with a high ITM probability is a much riskier combination than the headline yield number alone would suggest.

Consider two premium-selling candidates on a $130 stock. A 7-day cash-secured put at the $122 strike collects $0.95 in premium against $122 in capital, a 0.78% return over the period, which annualizes to roughly 41%. A 30-day put at the $118 strike collects $2.60 against $118 in capital, a 2.2% return over the period, annualizing to about 27%. The 7-day strike shows the higher annualized figure, but it also needs to be repeated correctly five times as often to actually realize anything close to that number, with fresh execution risk and a fresh ITM-probability check every single week.