Total Return

Understanding 'Total Return'

In the world of option trading with cryptocurrencies, Total Return refers to the comprehensive earnings or losses that an investor makes during a particular period. This term represents the aggregate of capital gains, dividend, or interest income, and it incorporates all aspects of an investment return. Unlike simple measures of profit, the Total Return considers all sources of value, both realized and unrealized.

Components of 'Total Return'

The Total Return is a combination of three key components: capital gains, dividends, and interest income. Capital gains come from the increase in the value of the investment. It's the profit that you make when you sell your cryptocurrency options at a higher price than you bought them. Dividends are payments made by a corporation to its shareholders, usually as a distribution of profits. Interest income is the return you get on your initial investment.

Total Return in Cryptocurrency Options Trading

In cryptocurrency options trading, 'Total Return' comprises of capital gains and the premium obtained from the sale or purchase of the options itself. If you're holding an option contract and the value of the underlying cryptocurrency increases, your Total Return includes the unrealized gain from the price increase plus any premiums you've collected.

Measure Your Total Return

It's important to calculate your Total Return often to evaluate your investment performance accurately. In the context of option trading with cryptocurrencies, you should consider the change in the cryptocurrency's market price and the premium earned or paid for the option. Remember that the Total Return reflects your overall investment performance, helping you to make more informed decisions.

A Practical Example

Let's say you buy a Bitcoin call option for a premium. If the market price of Bitcoin goes up and exceeds your strike price, you can exercise your option and sell Bitcoin at a higher price. Your Total Return in this case is the profit from the sale of Bitcoin plus the initial premium paid.

The Significance of 'Total Return'

Understanding Total Return can empower you to maximize your profits in cryptocurrency options trading. This concept helps you to gauge the effectiveness of your investment strategy. Remember, the highest Total Return not only signifies a strong investment but is also a sign of a savvy investor.