Yield Metrics
How to compare premium without turning a conditional payoff into a fixed-income claim.
#Useful measures
| Measure | Formula | Use |
|---|---|---|
| Premium on notional | net premium / initial underlying value | Cash premium relative to exposure |
| Breakeven cushion | net premium / units | Per-unit decline absorbed before loss |
| Maximum term return | (K − S₀ + P) / S₀ | Capped terminal return when K ≥ S₀ |
| Relative crossover | K + P | Price above which holding beats the covered call |
#Annualization
Annualizing a short-term premium assumes repeated reinvestment at comparable strikes, volatility, liquidity and cost. Those conditions rarely remain fixed, so annualized figures are scenario transformations rather than forecasts.
Simple annualized rate = term return × 365 / days#Comparison discipline
- Use net premium, not headline premium.
- Compare identical strikes, expiries and sizes.
- Show capped upside and full downside beside any rate.
- Separate observed quotes from illustrative inputs.
- Do not describe a conditional equity payoff as principal-protected income.