Last update: August 2021

I just engaged in a smile-inducing, heartwarming, dance with none other than NVIDIA. The entire episode illustrated perfectly the concept of Return on Time Invested (ROTI) and how to properly view trade management when selling options. If you’ve ever wondered how to optimize your premium-selling ventures then this tales for you.

These days NVDA is the belle of the ball. The California-based semiconductor stock is the poster child for all the bubblelicious behavior going on in the technology sector. It’s up 224% in the past year alone.

During Friday’s tech wreck NVDA suffered an epic bearish engulfing candle. From high to low its session range was an unheard of 15.3%. The accompanying implied volatility spike had me interested in selling bull put spreads into further weakness. And that is why NVDA made an appearance in last weekend’s Options Report.

The tech space experienced continued selling Monday morning carrying NVDA shares back to their rising 20-day moving average. Then, dip buyers swarmed and the stock – along with the entire tech sector – began its rebound. As planned I sold a July $120/$115 bull put for 50 cents. Keep in mind yesterday the July options had 39 days remaining to expiration.

Let’s think about how we might manage this credit spread. If we viewed our job as maximizing gains, then we would probably look to ride this pup all the way to expiration to squeeze every last penny out of it. And, if we capture the whole 50 cents we will have scored an 11.1% return ($50/$450) over 39 days.

But should grabbing every last penny be the goal? Shouldn’t the time element also enter the equation? That is, shouldn’t we also consider how long it would take to collect the entire premium?

The answer is yes.

One way to incorporate time is to consider the profit per day (PPD). If I make $50 over 39 days, then my PPD is $1.28. That’s great, I guess. But what if by managing the trade differently I could increase the profit per day?

What if, due to NVDA popping back Tuesday and its implied volatility falling, the July put spread fell in value from 50 cents to 25 cents? Suppose I took profits and called it a day.

Now think of my PPD. Since I made $25 over one day, it would be $25! Seems better than $1.28, doesn’t it? Now, did I leave $25 on the table? Yes. But, by exiting the trade I can now redeploy my capital elsewhere. And as long as I can capture more than $25 on something else over the next 38 days then I’m still better off.

This, friends, is why we like to take partial profits, particularly when they are front-loaded. It’s very uncommon to get 50% of my profits in one day. Which is why when it happened I take the money and run. That’s what I did on NVDA and what I will continue to do for any and all positions that are kind enough to give me such a large percentage of the profits in such a short period.

Now, I just made up the whole “PPD” acronym. It may or may not be used elsewhere, but the principle of thinking regarding profit per day is sound. The more popular acronym is ROT or ROTI, which is Return on Time or Return on Time Invested. Traders who focus on maximizing ROTI over maximizing gains will virtually always take profits early.

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