Return on risk

Also called Return on max loss, ROR, return on capital

A credit spread's credit divided by its maximum loss.

Return on risk compares what a defined-risk trade collects with what it can lose:

return on risk = credit ÷ max loss = credit ÷ (width − credit)

A $5-wide spread sold for $1.00 risks $4.00: 25% on risk. One sold for $0.50 risks $4.50: about 11%.

Read it with the odds

A higher return on risk almost always comes from a short strike closer to the money, which is reached more often. A 50% return on a spread that's breached half the time isn't better than an 11% return on one that rarely is. Read it beside the short strike's delta, its distance against the expected move, and its breach rate, or the chance of profit in the strategy calculator.

In Theta Vantage

The strategy calculator shows ROIC, credit over the capital the position ties up. For a cash-secured put that is credit ÷ (strike − credit).