There's a number most weekly options sellers love to quote: their annualized return. "I'm making 1.5% per week — that's 78% annualized!" It's a satisfying number. It's also probably not accurate. Here's why, and how to calculate your actual annualized return instead of an optimistic projection.
Why Is Simple Annualization Wrong for Weekly Options?
Simple annualization — taking your weekly return and multiplying by 52 — assumes a set of conditions that almost never hold in real wheel strategy trading:
- You deploy capital every single week of the year without any gaps
- You never have a losing week that offsets your gains
- Your capital is never tied up in an assignment for weeks or months
- The stock never drops through your strike, forcing an unplanned holding period
In practice, most wheel traders are actively trading 35-42 weeks per year. The rest involves assignment management, elevated volatility periods where you sit in cash, or simply life getting in the way. That idle time is capital drag that doesn't show up in simple annualization.
What Is the Correct Annualized ROI Formula?
True Annualized Return = (Total Net Profit ÷ Average Capital Deployed) × (365 ÷ Total Calendar Days in Period)
The key difference is the denominator: average capital deployed over the measurement period, not maximum capital. Weeks you sat in cash don't get erased — they drag down your annualized return, and that's exactly as it should be.
Worked Example
- Starting capital: $20,000
- Total net profit over 180 days: $2,400
- Average capital deployed (accounting for idle weeks): $18,000
- True annualized return: ($2,400 ÷ $18,000) × (365 ÷ 180) = 27.1%
The simple annualization of your "best week" would have been 39% or higher. The honest number is 27%. That 12-point gap represents the reality of idle periods, assignment management time, and less-optimal weeks dragging down the average.
Why Does Overstating Returns Actually Hurt You?
An inflated return figure leads to bad decisions: sizing positions too large because "the strategy makes 78% annually", abandoning the strategy during normal drawdown periods because it "isn't living up to expectations," and miscalculating the capital you actually need for your income goals. Honest return tracking is a tool for better decisions — not just a report card to feel good about.
Use OptionWheelTracker to see your time-weighted, capital-adjusted campaign returns automatically. No flattering math — just your actual performance.