For an options portfolio, I'd like to calculate return on capital from Jan to Dec. These are monthly options that are held for a few days to months. There's a couple of problems with trying to calculate calendar year returns:
1.) The early months will have low or not returns compared to months such as March - Sep.
2.) The latter months will have options expiring in Jan, Feb, and Mar of the next year.
How do I account for the above issues?
Mark-to-market accounting is needed. Just regularly update the intermediate value of the options and compare gain/loss to the beginning year balance. However, it's necessary to allow for deposits and withdrawals. For instance, deposit is not gain and withdrawal is not loss. Also, the effect of a large deposit or withdrawal can immediately change the investment result percentage as set against the balance. So there needs to be something like an average balance and that's probably a modified-Dietz.
Take a look at "KBH Investor Accounting". That software works mark-to-market accounting within yearly periods.
