When I say I am allocating 250k of the account towards the strategy - its about margin tie up. The 20% return would be against that margin, however, that is only possible due to the fact that I have other positions in this account offsetting the required margin due to using portfolio margin. This is a highly levered strategy- 250k would not be sufficient to trade it in an account by itself. Without the far out the money puts held in this account, I would be at a very high risk of ruin.
Fully Automated Trading Journal - $50k per month goal
- Thread starter frostengine
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When I say I am allocating 250k of the account towards the strategy - its about margin tie up. The 20% return would be against that margin, however, that is only possible due to the fact that I have other positions in this account offsetting the required margin due to using portfolio margin. This is a highly levered strategy- 250k would not be sufficient to trade it in an account by itself. Without the far out the money puts held in this account, I would be at a very high risk of ruin.
It's still 20% monthly return, whether you leverage 250k or not.
He is trading this strategy within the context of a 735k account, so a 50k return would be 6.8%. But that is not really accurate, because you would have to factor the cost of the puts mentioned earlier.
Thanks for the feedback.
Why would you not consider going pure delta01 then? You indicated you have a large enough account. Your total transaction costs would most likely be significantly lower than doing it through options...
Why would you not consider going pure delta01 then? You indicated you have a large enough account. Your total transaction costs would most likely be significantly lower than doing it through options...
Wow 6.8% monthly returns at what volatility.
With sharpe of 1, 81.6% volatility
With sharpe of 2, 40.8% volatility
With sharpe of 3, 27.2% volatility
With sharpe of 4, 20.4% volatility
Strategy is tenable with sharpe of 3 and 4. Else, it would be a crazy volatile strategy.
Good luck frosty - looking forward to see your progress learnings and profits
Ambitous! Following this with great interest.
Roughly how much per year does the OTM hedge cost you (as a % of capital allocated to this strategy?)
GAT
Roughly how much per year does the OTM hedge cost you (as a % of capital allocated to this strategy?)
GAT
@frostengine, could you give an overview of how you structure your OTM hedge?
The OTM hedge are generally bought 90 days out. At any given time, I like to have 3 to 5x the number of put contracts for each 100 shares. For example, lets say in my account I have 1000 shares of SPY and I am short 4 puts. That means I need protection for 1400 shares. So I will own around 40 to 70 far OTM puts. This allows me to sleep very well at night knowing if I woke up to a black swan - my account value generally increases very nicely irrespective of what all my strategies are currently holding.
I end up paying about 10% of my account value each year to maintain this hedge. I am not counting this hedge against this strategy - other strategies pay for the hedge over the course of the year (outside the scope of this strategy). That is just how this overall account is protected - and a by product means this strategy is also protected.
As fate would have it - today is a very bearish day so far, resulting in several trades being stopped out. I am not overly concerned with those trades though, I am spending most of my time analyzing the execution engine - making sure thing are behaving as expected. So far things look good.