Compare Option Strikes With This by Tim Zurick
How do you compare options with different strikes, margin
requirements, and expiration dates? Here’s a tool that will help
you make that decision.
More bang per buck: Many businessmen will tell
you that there is no more important factor in
financial decision-making. Option sellers face
a specific version of this decision: How should
limited margin dollars be allocated among possible
trades to maximize return on investment? Figure 1
frames the question.
Is option trading an investment? Perhaps not; in several
respects it is a unique class of trading, because time decay,
fluctuating margin requirements, directional bias, and shifting gamma combine to pose some unique trading questions.
But because profits from option selling can be enhanced by
the passage of time, profit potential can be evaluated in terms different strikes, margin requirements, and expiration dates.
Enter the Zurick quotient (ZQ).
of a rate of return over time, just like an investment. All that
is needed is a tool that enables us to compare options with