calculating return on capital (risk)

After this months loss with the IWM puts, I need to rethink how I calculate the Return on Capital, in other my return on the risk of positions that I put on.

For example, take the May 2009 trades. In May I put on several IWM puts which lost a lot of the put value due to time decay. As of Friday 5/15 I have closed all of my option trades. Taking the profits / risk, the ROC shows a return in the double digits. This ROC % is misleading since the overall net P&L of the portfolio is negative. One may ask how can I generate double digit ROC, while my net P&L is negative.

The answer to the question is simply due to my improper account of the risk in selling a naked put. The risk on the put should be the Put's strike price minus the credit collected from writing the put. Instead I put the credit of the Put write as the risk. This isn't correct. I could argue that if the underlying falls ITM then I would be assigned the underlying at the strike price. My cost will be the strike minus the credit I receive. If I manage the trade according to my risk management, I wouldn't allow the trade to reach zero.

I will recalculate the ROC using the full potential loss from the Put Write. I think that the ROC will be lower, depending on the number puts written. I may just do that since this is the true assessment of my returns.