Personal note

Earning an ROI of 5-10% month from one position is a reasonable expectation.

Expecting that you readily earn that for 12 consecutive months without a draw down is a big expectation.

Envisioning that your account will grow 5% a month for an extended period of time (say a year) is an almost unrealistic expectation. It happens but it's an anomaly.

I think I finally might be starting to understand. Yet if it is deemed a reasonable expectation to earn 5- 10% from one position than why would it be unrealistic to have this occur in consectutive months if in the first month it was pronounced as reasonable?

Not trying to be argumentative, just a rookie wanting things nice and clear:)
 
Quote from falcon:

ROI is precisely that: 'return on investment', not 'return on risk'. What if the risk is undefined (as in case of a short stock). Besides in general capital committed to a trade can be greater or less than it's risk.

The risk is defined in the case of ICs, which is the margin being the capital commited, therefore it is essentially the same thing in this situation.
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ROI is not bound by any specific strategy. As I said in general capital committed to trade can be more or less than it's theoretical risk. The predefined risk of IC does not mean that you can't lose all your cash in one trade. So you need to keep in your account ( or keep at hand ) at least 4-5 times of this amount to make 4-5 attempts. Your ROI is once again on the entire account ( your total bankroll ) not on how much you risk in one bet.
 
Quote from falcon:

I think I finally might be starting to understand. Yet if it is deemed a reasonable expectation to earn 5- 10% from one position than why would it be unrealistic to have this occur in consectutive months if in the first month it was pronounced as reasonable?
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It's possible to flip a coin 12 times and have heads come up 12 times in a row but would you expect it to happen very often?

For reality based stats, back test the strategy on actual data. How would an SPX (or other) position done in 07 and 08? 12 straight winners making you 5-10% a month?
 
Quote from falcon:

if it is deemed a reasonable expectation to earn 5- 10% from one position than why would it be unrealistic to have this occur in consecutive months
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If the position has an 80% chance of returning 5% in one time period, then it has only a 64% chance of doing that twice in a row. To see it for three straight months, the chances are only 51% Etc. To do it for 12 months, the chances are one in 14. Not horrible odds, but not a likely result either.

You can trade iron condors that have an 80% chance of <i>earning a profit</i>, but when the probability is that high, the returns are not 5%. They are less.

It takes more risk - i.e., a lower probability of success - to aim for 5% per month.

Mark
 
Mark,
It's been said a million times but congrats on your book doing so well. You seem like a genuine nice guy. Hopefully future books reap you the same rewards.
 
Thanks guys for all the responses, seems like we ended up discussing more about the probabilities of a position than what I was trying to get across, which was real trading returns .

I raised the question because I've been paper trading ICs for quite some time doing my best (with limmited experience) to manage them with adjustments and protection (Thanks Mark, learn't from you). I found that on a 10,000 position I was able to earn $600 for the month on average, so I have been putting on 5 seperate 10 lot ICs managed seperatly on different stocks & index and ended up with on average $600-700 for each 10,000 position.

I have now calculated this to be 6% on total margin at risk and 3% on ROI of entire 100,000 account. Thanks for clearing this up for me.

I know it's just paper trading, but you can imagine how thrilled :D i am that I am able to acheive this, so are you guys saying it is unrealistic for me to think I can continue this and with each month the probablity of this happening is reduced?:(
 
Quote from falcon:

Thanks guys for all the responses, seems like we ended up discussing more about the probabilities of a position than what I was trying to get across, which was real trading returns .

I raised the question because I've been paper trading ICs for quite some time doing my best (with limmited experience) to manage them with adjustments and protection (Thanks Mark, learn't from you). I found that on a 10,000 position I was able to earn $600 for the month on average, so I have been putting on 5 seperate 10 lot ICs managed seperatly on different stocks & index and ended up with on average $600-700 for each 10,000 position.

I have now calculated this to be 6% on total margin at risk and 3% on ROI of entire 100,000 account. Thanks for clearing this up for me.

I know it's just paper trading, but you can imagine how thrilled :D i am that I am able to acheive this, so are you guys saying it is unrealistic for me to think I can continue this and with each month the probablity of this happening is reduced?:(
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Your bankroll has to be 4-5 times of the margin at risk to play it safe. In this case your return would be 0.6% - 0.75% of your total account. Your bankroll is only 2 times of your margin at risk which is too small in my mind.
 
Quote from dagnyt:

If the position has an 80% chance of returning 5% in one time period, then it has only a 64% chance of doing that twice in a row. To see it for three straight months, the chances are only 51% Etc. To do it for 12 months, the chances are one in 14. Not horrible odds, but not a likely result either.

You can trade iron condors that have an 80% chance of <i>earning a profit</i>, but when the probability is that high, the returns are not 5%. They are less.

It takes more risk - i.e., a lower probability of success - to aim for 5% per month.

Mark
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Is that so? You numbers are False! You need to learn before you can try to teach. Otherwise the students would get mistakes planted in their heads.

Did you not learn from the errors I showed you sometime ago? I told you you are a failure when it comes to math and probs, a skill which is a must in options and trading.

Anyone who thinks his probs are right, build a condor, run a prob calculator to see when one of the short strikes will be visited? The self appointed great authored wrote that, unlike others, he does not hesitate to take losses and make adjustments, which means that his probs of failure will be much much higher than 20%? There are two probs: path dependent, and path independent. He is not even aware of an issue that even a mildly experience option trader knows. He said he traded for32 years, and he is not even aware of it!

I will let him say what that number is (number refers to prob of failure in a condor) to see if he can at least recollect what the answer I gave him was, because he already made the exact same mistake on this forum answering the same exact question, and he said at the time it was just a minor thing he overlooked. This reveals that the reality more like he has no clue otherwise he would not have made the same mistake more than once. Let us see what his answer will be to the numbers.

Always doubt people who do not know how to compute probs
 
Quote from falcon:


I know it's just paper trading, but you can imagine how thrilled :D i am that I am able to acheive this, so are you guys saying it is unrealistic for me to think I can continue this and with each month the probablity of this happening is reduced?:(
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Her's what happened to me - just to give you an idea.

When I first began using iron condors, I had FOURTEEN consecutive profitable months.

I know that will never happen again.

Losses are just too common when using this strategy. So if you get overconfident, you may manage risk carelessly. That would not be a good thing.

Mark
 
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