How to Plan Annual Returns Using an Options Selling Strategy

When examining the annual returns of equity mutual funds, we find that the top-performing funds can deliver gains exceeding 30% in certain years. However, it’s equally true that the list of “top funds” changes almost every year. Among the ten best performers, only two or three funds typically reappear from one year to the next — the rest are an entirely different lineup.

This is because every year favors a different asset class, sector, or regional market. One year, technology funds take the lead; the next year it might be Latin America, followed by Turkey, commodities, or healthcare.

In essence, the funds that end up being rewarded are those that had the best forecast, the best analysis — or simply the most luck — in that particular year.Celkové roční zhodnocení akciového portfolia nelze předem nijak plánovat.

The overall annual return of an equity portfolio cannot be planned in advance

The reason is simple: it is extremely rare for individual equity funds to deliver consistent returns year after year, because the price movement of individual stocks is inherently unpredictable.

An equity portfolio is typically composed of stocks you believe will generate the best returns over a certain time horizon. As such, portfolio returns can only be influenced through careful stock selection and accurate market timing.

However, the situation is fundamentally different when it comes to options trading — but only if you are using an option selling strategy. If, on the other hand, you are buying options and speculating on directional moves — whether long or short — your ability to estimate annual returns remains just as uncertain as with traditional equities.

An options writing strategy benefits from time decay and the frequent overpricing of implied volatility. It is a systematic approach that — unlike buying options — does not rely on a strong directional move in the underlying asset. Instead, it is built around probability: the likelihood that the market will stay at least a certain distance away from your positions

So let’s take a closer look at how an options selling strategy can be used to systematically plan for annual returns.

How to Plan Annual Returns Using an Options Selling Strategy

Let’s take a look at a screenshot from our internal modeling system to illustrate the concept of return planning.

For the sake of simplicity, assume you start the year with an account value of CZK 10 million and aim for a 30% annual return, with no additional deposits or withdrawals throughout the year.

As shown in the image, achieving a return above 30% ideally requires a monthly return of approximately 2.25%. At the current CZK/USD exchange rate, this translates to generating just over $10,000 in net monthly income from the market.

And this is now a clear, understandable, and actionable objective.

In other words, our task in this scenario is to sell option positions that generate approximately $10,000 in premium income each month.

So how do we get there?

With such a clearly defined goal, your task is to identify underlying stocks or ETFs that — while meeting all your criteria for opening a position — allow you to collect the required monthly premium while also making efficient use of your margin capital.

These are, of course, implementation details that go beyond the scope of this article. We cover all our selection criteria, margin management techniques, strike and expiration selection, and much more in our online course, which will soon be available in English on our website.

If you decide to pursue options selling on your own, the course will provide you with a clear, step-by-step framework.

In this article, my goal was to highlight a simple but important point:

If you trade only stocks, your annual return is entirely dependent on selecting the right names and timing your entries well.

Once your positions are in place, you can do little but wait, hope, and see how the year unfolds.

In contrast, with an options selling strategy, you gain a powerful tool to actively and deliberately work toward a target annual return — one that you define in advance.

Of course, there’s no guarantee that you’ll hit your target return — especially in a year when the market moves significantly against your positions.

But even then, options provide you with far more flexibility than long or short equity positions alone.

You can roll your trades to later expirations and collect higher premiums, rebalance between puts and calls depending on changing market conditions, and apply a variety of risk-management techniques — but that’s a topic for more advanced strategies.

If you’ve had success managing annual returns using a different method or asset class, feel free to leave a comment below or get in touch through one of the contact options on our website. I’d love to hear your experience.