how do you quantify your performance

Y

yip1997

I did a simple analysis for all my option trading for this year. My average profit for each contract is around $10. I am a spread trader.

Since $10 a contract = 0.1 for each share and 0.1 is usually the bid ask spread. If I paid an extra 0.1 for each share I traded, I would have lost money.

Can any successful option traders share their performance here? I want to know when is a good time to size up.
 
Quote from yip1997:


Can any successful option traders share their performance here?
More...

what , no replies yet ? Add word "paper" to " traders" and you will get a lot of advises...J/K , YIP , I hope someone will reply to your questions.
 
It would help to know exactly how you came up with your $10 per contract number, which can be very deceiving.

For instance, you do a single spread trade with 10 contracts for a $1 credit. $1000 profit. Are you calling this a profit of $100 per contract? But its a spread, so you really traded 20 contracts. Now you're at $50 per contract. But wait...instead of letting the spread expire (which you certainly could have done), you closed it early for a 0.05 debit to reduce your expiration week risk. Now you have a $950 profit and you traded 20 contracts for $47.5 per. Or do you call it 40 contracts for $23.75 profit per contract? This winning trade just gets worse and worse :)

Do you include commish in your calculation?

At first glance, your $10 per contract number seems pretty low. Are you sure that is the "right" number?

More importantly, do you like the equity curve for your account?

Quote from yip1997:

I did a simple analysis for all my option trading for this year. My average profit for each contract is around $10. I am a spread trader.
More...
 
Quote from jeffm:

It would help to know exactly how you came up with your $10 per contract number, which can be very deceiving.

For instance, you do a single spread trade with 10 contracts for a $1 credit. $1000 profit. Are you calling this a profit of $100 per contract? But its a spread, so you really traded 20 contracts. Now you're at $50 per contract. But wait...instead of letting the spread expire (which you certainly could have done), you closed it early for a 0.05 debit to reduce your expiration week risk. Now you have a $950 profit and you traded 20 contracts for $47.5 per. Or do you call it 40 contracts for $23.75 profit per contract? This winning trade just gets worse and worse :)

Do you include commish in your calculation?

At first glance, your $10 per contract number seems pretty low. Are you sure that is the "right" number?

More importantly, do you like the equity curve for your account?
More...

You are right. In your example, I will say $23.75 profit per contract. My calculation is very simple. For example, I have traded (opened and closed) 1000 contracts this year, and I made $10,000 after commission charge. My average profit per contract is $10. I might have some winning spreads, some losing spreads, some naked and some longs. I don't care my strategy. I just compute the simple average profit per no of contracts traded. Do you think the number is "low"?
 
I think its good to evaluate your overall performance. For some traders, the $ per contract metric might be ok. I don't think it works for your style of trading.

Lets take the previous example a bit further. You make a 10 contract spread trade for a 1 point net profit after closing the spread. That's 40 contracts traded for a profit of $25 per contract. Your next trade is another 10 contract spread that doesn't cooperate and you manage to exit for b/e. Now your profit per contract is down to $12.50, which is getting close to your actual results of $10.

If you just walked up to me and said "Every month, I make 1 pt on half my trades and b/e on the other half", I would say you are tearing it up! But yet your profit per trade would only be $12.50.

Long story short, I don't think this method of quantifying your performance is good for you.

Quote from yip1997:
Do you think the number is "low"?
More...
 
Quote from jeffm:

I think its good to evaluate your overall performance. For some traders, the $ per contract metric might be ok. I don't think it works for your style of trading.

Lets take the previous example a bit further. You make a 10 contract spread trade for a 1 point net profit after closing the spread. That's 40 contracts traded for a profit of $25 per contract. Your next trade is another 10 contract spread that doesn't cooperate and you manage to exit for b/e. Now your profit per contract is down to $12.50, which is getting close to your actual results of $10.

If you just walked up to me and said "Every month, I make 1 pt on half my trades and b/e on the other half", I would say you are tearing it up! But yet your profit per trade would only be $12.50.

Long story short, I don't think this method of quantifying your performance is good for you.
More...

Jeff,

What is a better metric in your opinion?
 
I agree with Jeffm in that profit per contract is a meaningless measure of performance.

Profit as a function of capital employed would be more useful, and better still profit as a function of risk taken even better.

The Sharpe ratio is probably one of the best measures of trading performance, IMHO.
 
The Sharpe ratio is probably one of the best measures of trading performance, IMHO.

What is sharpe ratio. How do I calculate this. Thanks
 
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