:: VAMI - Monthly ROI

Month	ROI	VAMI
1	11.20%	$1,112
2	14.90%	$1,278
3	-1.50%	$1,259
4	-5.10%	$1,194
5	0.50%	$1,200
6	9.70%	$1,317
7	-1.70%	$1,294
8	5.90%	$1,371
9	3.90%	$1,424
10	-0.50%	$1,417
11	1.70%	$1,441
12	3.30%	$1,489
13	11.10%	$1,654
14	5.20%	$1,740
15	7.50%	$1,870

Sterling Ratio

As we have seen, both the Sharpe and Sortino Ratios look to quantify risk in terms of the deviation of returns. And while this is certainly a significant part of the risk associated with options trading, it is by no means the whole story.

:: Drawdown

We saw in the section on Maximum Drawdown that this is another aspect of risk that needs to be accounted for. In fact, being in the midst of a series of losing trades can be one of the riskiest times in trading, for it is then that the potential for misjudgement is at its greatest.

Accounting for risk in terms of drawdown is what the Sterling Ratio does. It is calculated by dividing the Annual CROR by the Absolute (Average Yearly Maximum Drawdown less an arbitrary 10%). In doing so, it seeks to find the service that has the highest return while also enduring the least amount of drawdown volatility.

:: Formula

Annual CROR/ ABS (Average Maximum Drawdown - 10%)

:: Calculation

Using the same service's results, we can calculate the Annual CROR, which is 64.9%.

The Average Maximum Drawdown is an average of the maximum monthly drawdowns. In this case, it is 6.6%.

By inserting these values into the formula, we then calculate the annual Sterling Ratio to be:

64.9 / ABS (-6.6 - 10) = 3.91

In this case, the Sterling Ratio confirms the overall picture - that this particular service is manages its risk very well, whether that risk is quantified by standard deviation (Sharpe Ratio), semi-deviation (Sortino Ratio) or maximum drawdown (Sterling Ratio).