Return on Capital is simply the return (profit) received on money invested, in the case of options this is the margin requirement on the trade. The margin requirement is either the premium paid for net-long positions or based on margin rules for net-short positions. Return on capital is used to measure the trade-off between risk and reward/return.
Return on Capital relates to the money invested (margin requirement) relative to maximum expected return in an options setup. This is important for determining margin requirements and defines the profitability of the setup. When comparing setups of different duration, then it is best to use annualized return on capital as this will give you a consistent comparison for trades with different timeframes.
