June Results - 8.81%
Written on June 21, 2008 by OptionsRopeaDope
Sorry for the lack of trade related updates recently - I still had one position open (SPX Put wing for an Iron Condor) that I was waiting for expiration on. It expired worthless, giving me a 14.6% return on that trade for capital at risk.
That gave me a great month - 8.81% to be precise. That included a max loss taken on the MSFT calendar, plus some late adjustments where I gave up more profit than I needed to (on EEM). If I dont make those same mistakes, this return should steadily improve. Some stats -
Return - 8.81%
Wins/Losses - 3/2
Expectancy Ratio = .28
The expectancy ratio is something new I am going to track from here on out. According to Van Tharp in his book Trade Your Way to Financial Freedom expectancy, along with risk management, are the two most important things to track in your trading to ensure your success. It tells you how much you’ll make for each dollar risked over the long run, given a series of trades, and in this case, that adds up to 28 cents per dollar risked. You’ll notice that is quite a bit higher that 8.81%… that is because I’m not putting the entire investment at risk, only a fixed amount. For example, I lost 100% of the capital I had at risk on the MSFT calendar, but I actually had 4 times as much money tied up in that trade (that is, my max loss was 25% of the investment in the trade. Alternatively, the SPX condor I mentioned above returned to me 95% of my risk capital, but only because my max loss was 1.25 times the credit I received, thus, my overall return 14+%.
A little complicated but I do think it sheds some light on how healthy my strategies and management are. Hoping to exceed that next month.
As for new trades for the July cycle, expect next week to be full of new trades using the templates I published last week. I already opened a condor over a week ago that is up nearly 5%, and I’ll be tracking it and the rest on a near daily basis beginning Monday. Have a great weekend!
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I am curious about your results… is this the net growth of your portfolio, or the average results of your trades for the month?
The reason I ask is that I am struggling with the area of portfolio management and how to best allocate trades, risk, cash, etc.
Interested in your thoughts in this area.
Bill
Bill,
This is return on my “capital at risk.” On my overall portfolio, it is a bit less (7% last month). I try to keep 15-20% in cash each month for adjustments (calendars especially need them). Last month I actually had more than that in reserve, but it’s just cause I waited to long to use the remainder
On Portfolio management in general, I think it is best to be about half in condors (negative vega) and half in calendars (positive vega), and its ok to lean more heavily toward calendars if vols are low and you expect them to rise. There are more variables of course (equities vs indexes, etc) but that’s a good start.
On risk, your max loss should be your max risk - don’t violate it or try to make it back if you should accidentally blow through it. With these strategies especially, I have to keep an eye on them cause things can go from bad to worse quickly if you don’t.
And you need some cash for those adjustments of course, as I mentioned. That’s how I approach it.
Thanks a bunch… very helpful. I recently saw the Dan Sheridan video on the CBOE webcast page about this. It was pretty helpful as well. He talks about leaning vega-risk depending on the RVX level (his current guage of market IV). It’s pretty good and worth a look.
Thanks again for the pointers.
Bill