Options Scoring Guide
How scores are calculated and key options-selling vocabulary.
How the Score Is Calculated
Each option receives a composite score out of 100 based on six factors with fixed weights, plus a penalty for wide bid-ask spreads:
Premium Score
Calculated from the premium as a percentage of the strike price using a logarithmic curve with diminishing returns. Maxes out near a ~6.7% premium.
Theta Score
More negative theta earns a higher score (better time decay for sellers). Values are scaled to reward stronger time decay without over-penalizing small differences.
Strike Distance Score
Measures how far the strike is from the current price. Closer strikes score higher; each ~0.8% farther reduces points progressively.
DTE Score
Peaks around 38 days and decays linearly within 30–45 DTE, with faster decay outside that range to reflect assignment and timing risk.
Implied Volatility (IV) Score
Rewards higher IV, as it leads to higher premiums. The score is scaled, with the maximum score awarded to options with an IV of 75% or higher.
Liquidity Score
Combines open interest and volume to measure how easily an option can be traded. Higher liquidity is better, and the score is calculated on a logarithmic scale.
Bid-Ask Spread Penalty
A penalty is subtracted from the total score if the bid-ask spread is wider than 10% of the ask price. This penalizes illiquid options where slippage is likely.
Vocabulary
Premium
The price received for selling the option (usually the bid). Expressed as an absolute amount and as a % of the strike.
Theta
Daily time decay of the option’s price. For sellers, more negative is generally better.
DTE (Days to Expiry)
Number of days remaining until the option expires.
Strike Distance
How far the strike is from the current stock price (as a ratio). Closer strikes carry more assignment risk but higher premium.
Simple Return
Premium ÷ required collateral (e.g., strike × margin rate). Shown as a percentage.
Annualized Premium %
Simple return scaled by 365 ÷ DTE. Useful for comparing contracts with different expiries.
In/Out of the Money
For puts, a strike above the current price is ITM; below is OTM. Styling indicates this visually in tables.
Implied Volatility (IV)
Market’s estimate of future volatility. Higher IV generally means higher premium.
Notes
- Scores help compare opportunities, but they are not financial advice.
- Always consider liquidity, earnings dates, and personal risk tolerance.
- The model prioritizes premium and time decay; adjust to your strategy as needed.
- IV and Liquidity are now included to give a more balanced view of risk and reward.