How to rebalance short/long positions?

Q

qll

here is an example. you have $100k, $50k to short, and $50k to long. both positions now have 10% profit now. Now you have $45k short and $55k long with $10k reinvestable profit. What do you do? Your short/long ration is changed from 10/10 to 9/11. Should you add 5k to short then sell 5k long positions, to make 1/1 ration again? or add $10k to short, and does not change long? or add 5k to short and add 5k to long?

Old position:
$50k short, $50k long, $0 useable margin
Current positoon:
$45k short, $55k long, $10k useable margin.

What to do?
 
Quote from qll:

here is an example. you have $100k, $50k to short, and $50k to long. both positions now have 10% profit now. Now you have $45k short and $55k long with $10k reinvestable profit. What do you do? Your short/long ration is changed from 10/10 to 9/11. Should you add 5k to short then sell 5k long positions, to make 1/1 ration again? or add $10k to short, and does not change long? or add 5k to short and add 5k to long?

Old position:
$50k short, $50k long, $0 useable margin
Current positoon:
$45k short, $55k long, $10k useable margin.

What to do?
More...

Good question. I would add to the position that generated the profit until some indicators reverse direction.

Ron
 
using your method, if you keep adding by the same % to profitable positions, the short positions will get smaller and smaller and the long positions will get bigger and bigger.
 
Quote from ChaosNSX:

Rebalance, the portfolio back to the 1/1 ratio.
More...

that means, i will only add to the short positions.

50long/50short->55long/45short->55long/55short

it is unhealthy.

i think add by the same % is the best choice.
or just think to have two initial 50k accounts. one for short and one for long.

than 60long/50short will be better balanced.
 
Very good question! This is the key to a profitable outcome in trading:

(1) So what do you do if the net P/L is negative

both the long and short are down by

(a)same amount?

(b) different amount...how much in % of shares/no. of contracts do you scale in on winning side, how much on losing side?

(2) if net P/L is positive,

when/at how much %gain do you scale in

(a) equal amounts on both sides, as suggested by you or
more on the losing side and less on the winning side-
is there a better way to scale in?


(b) how do you apply this concept to hedging spreads with spreads:

http://www.elitetrader.com/vb/showthread.php?threadid=109200
 
here is my final conclusion:

just think as you short 50k of the same stock and long 50k of the same stock, then you have a zero total. and no matter how it moves, you have a zero system risk. So here is answer to my question.

You will increase and decrease by the same amount % of INITIAL investment.

So

50/50 -> 55/45 -> 60/50 is the FINAL answer.
 
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