The Math: Shockingly Simple Numbers Behind 50% ARR

Many of you may be wondering what the math is behind the Put Path strategy. Well today is your lucky day because we are going to go through it in detail. This is important because it will give you confidence that the system will work for you. So I’m going to give you a peak into the projected returns and the actual returns over time. Again, I cannot guarantee that you will see up to 50% annual return rate (ARR), but after reading this you will understand more and should be able to prove it to yourself at least theoretically. That is half the battle; if you commit to the plan and you work the Put Path, you should get very similar returns to what I am getting. My advantage in this space is that I am not trying to sell you a stock, or an option, or a hot pick, or another “situation”, or a moon shot, or a risky long call, or chasing the smart money, or follow unusual options activity. What I am teaching you is a disciplined, strategic approach that works in all market environments, as long as you get enough occurrences and you follow the prescriptive plan.

So, without further ado, let’s get to it. The math, just like the Put Path itself, is fairly straightforward. You can set up a spreadsheet with these variables and play around with it if you’d like. I am planning to add a video to this post so I can walk you through it on my spreadsheet. But in lieu of that, let’s start with the constants and then we’ll work through the variables. The constants are your number of trades per year (624), Buying Power (Net Liq.) $24,000, Lot Size (1), Commissions ($1) and Fees ($0.30). Number of trades per year is easy 12 x 52, which is the number of underlyings we trade times the number of weeks per year. If you are only trading 4 underlyings for example that is fine too because your Buying Power would be offset proportionately so it doesn’t affect the overall ARR we are trying to achieve (~50%). For this example, we are using Buying Power of $24,000, which is what is required at minimum to trade 12 underlyings per week. Lot size is also 1 with this amount of Buying Power. Lastly, the negative stuff (commissions and fees). Obviously, these vary depending on your brokerage, but the approximate average is around $1 per lot in commissions and $.30 in fees per trade. With Robinhood, your commissions are $0 so that does help your profitability. Note also that your BPR allocated to each trade is around 2.1% of your overall BP, which is about the maximum that you would want ($500 / $24,000).

Now for the variables, which are the Loss X, Win Rate and Credit Target. The Loss X is the amount that you typically lose when your trade goes against you, expressed relative to original credit. For example, if you get a credit of $0.40 when you open the Put Credit Spread, and you pay a debit of $1.20 to buy it to close, this would be a 2X loss. Here is the math: $1.20 – $0.40 = $0.80, so you have a $0.80 loss. Relative to your original credit of $0.40 that equals 2 so you have a 2X loss ($0.80 / $0.40 = 2). Another example, if you get a credit of $0.50 when you open and you close for a debit of $1.75, you would have a 2.5X loss. $1.75 – $0.50 = $1.25. So $1.25 / $0.50 = 2.5. So far YTD, I am seeing a 2.59X loss on my losers. I have been slow to close occasionally, and I had some larger than preferable losses, so I am above my 2X target. Also, I haven’t had many loses this year, so the larger losses are disproportionately raising the value. Additionally, we have to consider Win Rate. We target -0.15 Delta or 85% Probability of Profit trades. Over time with enough occurrences, we should see an 85% Win Rate. In my trading with this system, I have seen this number fluctuate over time between 82% and up to 92%. Year to date in 2025, we are seeing a 91.0% Win Rate, which is highly unusual and on the high end of the range. For short time periods, I’ve seen the Win Rate as low as 82% as well. The good news is that you would still be profitable at an 82% Win Rate, just not as much and will likely not see 50% ARR. Lastly, we need to consider our Credit Target. On average, you should be getting a $0.41 or better Credit Target. So, for the 12 underlyings, some will be higher, and some will be lower. On the high end of the range, you will find SMH, QQQ and GLD ($0.50+) and on the lower end you’ll see TLT (around $0.25), so on average you should get around $0.41. Year to date, I am getting $0.41. You can change any of these variables depending on how conservative or aggressive you want to get with minor latitude in strike prices.

From there we use these constants and variables to predict the Net Profit for the year. To calculate the Net Profit, you subtract your projected losers from your projected winners. For example, projected Win $ for this example is $21,057 and projected Loss $ is $10,254 for a Net Profit of $10,802. Your Wins $ is the total amount of your winning trades in dollars for the year. To calculate your Wins in $, you follow this formula:

Trades Per Year x Lot Size x Win Rate x ((Credit x 100 – Fees))

624 x 1 x 0.85 x (($0.41 x 100) – $1.30)) = $21,057

Then you need to predict your losses (Loss $) for the year, which is the total amount of losing trades in total dollars that you have during the year. To calculate your Loss $, you follow this formula:

Trades Per Year x Lot Size x (1 – Win Rate) x LossX x ((Credit x 100 + Fees))

624 x 1 x 0.15 x 2.59 x (($0.41 x 100) + $1.30)) = $10,254

So, if your total winning trades account for $21,057 and your total losing trades account for $10,254, then your total projected profit is $10,803. Since we are using all of our Buying Power (Net Liq.) of $24,000, you simply divide your profit by your Buying Power to calculate your total ARR of 45% ($10,803 / $24,000 = 0.45). Obviously, that is less than 50%, but it is also very conservative. For example, this year, I am actually seeing a 91% Win Rate in 2025. Using my actual Win Rate, that increases the overall ARR to 68.3%. In order to achieve our nominal 50% ARR, we need to hit 86.3 Win Rate with all other variables being held equal. Alternatively, you can close out your losers quicker when they are closer to the 2X loss and this would get you a similar result. For example, if our LossX was 2.29, then we would hit the 50% ARR with a 85% Win Rate. To keep the math simple we have not included the close out trades for winners (typically $.01 or $.02), but that will affect your overall profitability.

Hopefully this math makes sense. I have been tracking every Put Path Credit Spread trade since 2020 and the results have been very consistent. To get these types of returns, the method must be followed precisely. There are some decisions that each trader needs to make in order to be successful. In this system, we control what we can control, and the trader is responsible for individual success or failure. The market is extremely unpredictable: “Nobody knows anything” is a TastyTrade motto and it rings true. Once you think you know something, or your analysis will decipher direction of the market or individual stocks, that’s how you get in big trouble and you eventually lose money. My three big recommendations to control are:

• Close out your losers at 2X loss – this is the key to the whole system and if you don’t do it, then you will likely lose money
• Trade when volatility spikes if possible during the week. We wait for the 1% down move in the underlying and then open our trades
• Follow the Put Path System as close as possible regarding underlyings, # of trades, delta targets, DTE, laddering, $5 wide, etc.

Please leave comments below or reach out to me directly if you have any questions!