Options Glossary

Glossary: Covered Return

Last Updated: March 18, 2017


Covered Return

What Does Covered Return Mean in Options Trading?

Covered return may be calculated on options trades where the premium is collected from selling options rather than from the purchase of contracts. These positions have a maximum return equal to the premium collected at trade entry. The covered return is an indication of the percent potential return against the notional risk or the amount of money that may be required if all short contracts were exercised.
Note: Covered return differs from Exercised Return. Exercised Return is specific to covered call setups and takes into account both the received premium and any potential appreciation in the underlying's (stock's) value at the short strike price.

How to Use In the Brutus Options Ranker

Covered return can be calculated for setups where options premium is collected at trade entry. A list of compatible setups is given below:
- Short Puts
- Covered Calls
- Any other net short options setup
This criterion is a measure of profitability and therefore, can be added either to the top level of your strategy tree or under an appropriate custom group for maximizing potential trade profitability.
Covered return can be added to any strategy criteria with one of the two recommended objectives:
1) Either add to your strategy with the objective to maximize or
2) Add to your tree and target a specific return you are looking for. If you choose the latter method, make sure to target a realistic return and weight the criterion appropriately.

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