Received IRS CP11 notice stating that I did not qualify for the optional method of computing self employment tax. How is this figured?

These are the requirements for the optional SE calculation. 

You may be able to use this method to figure your net earnings from nonfarm self-employment if your net nonfarm profits were less than $6,540 and also less than 72.189% of your gross nonfarm income. Net nonfarm profits are the total of the amounts from:

To use this method, you must also be regularly self-employed. You meet this requirement if your actual net earnings from self-employment were $400 or more in 2 of the 3 years before the year you use the nonfarm optional method. The net earnings of $400 or more could be from either farm or nonfarm earnings, or both.

Using this method decreases your AGI which affects the calculation of your premium tax credit.