Return on capital is a metric that tells us how much P/L we collect as a % of initial buying power reduction. The question in this segment is how stable is this return on capital figure across the last 14 years?Study
- SPY, 2005 to 2018
- Selling 16 delta put and calls (strangles)
- 45 days to expiration
- Held to expiration
- Observed average historical return on capital for four periods since 2005
We find that on average we can expect to collect in our P/L roughly 3% of the buying power reduction. Return on capital stayed pretty consistent throughout the last 14 years with the exception of 2008-2010 where ROC was higher than average due to declining volatility after 2008.