Hello, Could someone explain to me how they calculate the percentage of the gained credit of put credit spread at expiration? Thank you,
Who is they? Are you talking about how your broker calculates your rate of return? Different brokers may do things differently. Can you provide a concrete example, including the prices you got when you put the spread on? One way of looking at it is take the amount of money you got to keep when the options expired and divide it by the amount you had at stake, i.e., your maximum potential loss. BMK
If you've placed a Put Spread and received a Credit for it, then that Credit is the most you can make on the trade; e.g. say I sold a $5 wide Put credit spread in the SPX for $1 for strikes -3400/+3395 then I am risking $4 (i.e. $5 width between strikes - $1 initial credit received) to make $1 (i.e. the original credit received). If the SPX is above 3400 at expiration your profit is $1, giving you a 25% ROI. if the SPX is below 3395 at expiration you lose $4. If the SPX is between 3400 and 3395 at expiration your profit or loss is dictated by how much the 3400 Put is in the money, e.g. if the SPX expires at 3397.50 then your loss is $2.50 - $1 = $1.50.