What to do with a profitable strategy?

[Atikon]

This will reveal the strategy, something he doesn't want.

How? Aren't they just showing Reuturns and Risk to the Investors?

 

[quantprof]

Wow, I did not expect so many responses. Thanks to all. Let me try to reply to some of them here:

mr quantprof,

how much babysitting does your system take?

A few hours a day on average, but highly variable. It is automated, but parameters need frequent manual adjustment.

For starters, can you get any capital into a margin account? You'll have minimum 3x the capital then to trade with.

I’m already in a portfolio margin account. I cannot leverage more.

Backer or FO. Make certain you have well-documented results and it helps if you are a "marketplace" city like SFO or LA and realistically don't plan on keeping your day job.

I like the first part of this post and don’t dispute the second, though I was hoping it is not true. I am in a good location I suppose, though how to find the right backer or FO is not something I would know how to start.

I had been in your shoes a long time ago. I would suggest make your own money. When you will make enough, leave jour job, start your own and work for yourself and make money. That’s my subjective. Up to you.

With your partner different thinking, loosing trust, loosing money.

Thanks. I am not a young man, so the miracle of compounding is not going to work so well for me. I am trying to accelerate the process, even if it means giving up some value.

 

[quantprof]

• Borrow money to scale up. Wealthy friends/family. Mortgage your house. You can deduct your interest costs from your taxes.
• Find a prop firm willing to back you with huge leverage (not recommended, high risk of strategy being stolen)
• Sell the strategy. You will somehow need to convince the buyer that it is legit w/o revealing the edge during negotiation.
• Trade OPM. Set up some kind of mini fund or advisor account structure (I think you can do this at IB) where you are able to charge huge performance fees (50%) and find a bunch of clients.

Mortaging the house is not a bad idea.

I have heard about the risks of prop firms, and Southern California does not seem to be a hotbed for them anyway.

Selling the strategy is appealing. Realistically, I don’t know why anyone would pay a dollar for a strategy that they haven’t seen.

OPM is a possibility, but I am hearing widely variable estimates about what kind of fee I could charge. Is 50% realistic?

Copytrading? I'm hesitant to recommend it, because I haven't researched it yet, but it might be smth worth looking into

As d08 said, I think this would reveal the strategy.

Start your own private wealth management and grow. If you are thinking about getting additional education like a PhD, any prior work would accelerate graduation. You can patent an idea and monetize it.

If you are confident you can borrow money and invest. I don't get what you said about 401k.

You are able to develop a quant idea but you don't know how to put it to use? It is hard to believe.

I have a PhD already. What I meant about the 401k is that my money is almost all in retirement accounts that cannot be traded the way that I trade.

If somebody can reverse engineer it, they will do it 100% despite their assurances otherwise, even with legal documents signed. So I would say your option of leveraging it with OPM is out.

Only possible scenario I see is you just keep it to yourself and grow it with whatever means you have at your disposal. Get a loan, mortgage your house, work a side gig, or whatever.

Reverse engineering is my biggest fear. I think I have slightly more hope in humanity than you, but not much.

As I mentioned in my response to 1957may10, I am not a young guy. Compounding is great and all, but I will not extract the full value of the strategy using my own money.

Even you do not have to borrow. If you have a few thousand you can start making your nest.

How come you still do not have it, it is surprisingly unbelievable.

20% per year is great, but it’s just been 4 years. Money only grows so fast, and I only have so much time on this earth.

 

[d08]

20% per year is great, but it’s just been 4 years. Money only grows so fast, and I only have so much time on this earth.

Why are your risk parameters so strict? The only "easy" way to compound is to allow more risk, larger drawdowns. 2% is just noise for most retail traders. At 10% DD, which is still very modest, you'll have 100% return PA. What's wrong with that? For comparison, my max DD for the whole account is about 20%, granted it should happen only a few times per decade.

 

[ironchef]

I’m hoping to get some advice here about where to go with my trading. I’ll keep this relatively brief. I have been trading profitably for 4 years. Annual returns have been 20%. Max drawdown is 2%. Average holding period is several days. Always market neutral. Most volatility is on the upside, so my Sortino (10) is much higher than my Sharpe (1.8). I cannot lever the strategy further, since I already run into portfolio margin limits on a regular basis. The strategy will scale to the low $10s of millions. It is also relatively easy to reverse engineer if you saw the trades, so it would be easy to make myself unnecessary if I shared the strategy.

I would like to do something more than just trade the small amount of money I have that is not in a 401K. However, I have a FT job that I don’t want to quit, so I’m looking for some outfit to partner with. After some looking around, I have not found any natural fit in my area (Southern California).

So what should I do, folks? How can I find someone who wants to do something with this strategy and not screw me over?

Other than all the great advice you get, I have one more suggestion to expand your capital base if you really believe in your method:

401K accounts are very restrictive and in general you cannot trade within your company 401K. However, nothing says you cannot rollover your 401K into a self directed IRA. I trade options, spreads... using my IRA in addition to taxable accounts.

I also agree with @1957may10, among others: Keep saving, keep compounding your 20% while working your day job. One day in the not too distant future, you will realize you no longer need a day job and can trade full time for a living. How do I know? Been there done that.

If I were you, I won't ask friends and family to co-invest. Why? If you make money, it is their gain but if you lose money it is your loss. No win doing that.

 

[quantprof]

Why are your risk parameters so strict? The only "easy" way to compound is to allow more risk, larger drawdowns. 2% is just noise for most retail traders. At 10% DD, which is still very modest, you'll have 100% return PA. What's wrong with that? For comparison, my max DD for the whole account is about 20%, granted it should happen only a few times per decade.

I guess I was figuring that my portfolio performance would serve as proof of concept for managing OPM, and that it would be easier to convince backers with strict risk controls in place. But now that I have the proof of concept, I can't figure out the second part.

The average return will not quite scale with risk, so my Sharpe will decline if I increase risk. That is fine if I am managing my own money, but again that was not the original goal. Maybe it should have been.

 

[1957may10]

Mortaging the house is not a bad idea.

I have heard about the risks of prop firms, and Southern California does not seem to be a hotbed for them anyway.

Selling the strategy is appealing. Realistically, I don’t know why anyone would pay a dollar for a strategy that they haven’t seen.

OPM is a possibility, but I am hearing widely variable estimates about what kind of fee I could charge. Is 50% realistic?



As d08 said, I think this would reveal the strategy.



I have a PhD already. What I meant about the 401k is that my money is almost all in retirement accounts that cannot be traded the way that I trade.



Reverse engineering is my biggest fear. I think I have slightly more hope in humanity than you, but not much.

As I mentioned in my response to 1957may10, I am not a young guy. Compounding is great and all, but I will not extract the full value of the strategy using my own money.



20% per year is great, but it’s just been 4 years. Money only grows so fast, and I only have so much time on this earth.

OK this is my last statement in this discussion: sell it, or prove it works and make $$$$ to start your own account. I did it so long ago. In my opinion, it’s much easier today to compete with stupid algos written by outsourcing labor force for $7 per hour. Period.

 

[quantprof]

Other than all the great advice you get, I have one more suggestion to expand your capital base if you really believe in your method:

401K accounts are very restrictive and in general you cannot trade within your company 401K. However, nothing says you cannot rollover your 401K into a self directed IRA. I trade options, spreads... using my IRA in addition to taxable accounts.

I also agree with @1957may10, among others: Keep saving, keep compounding your 20% while working your day job. One day in the not too distant future, you will realize you no longer need a day job and can trade full time for a living. How do I know? Been there done that.

If I were you, I won't ask friends and family to co-invest. Why? If you make money, it is their gain but if you lose money it is your loss. No win doing that.

Thanks, for the encouragement, ironchef. But an IRA wouldn't work because I go short a lot. I will just have to keep growing the money I have unless something else comes along.

 

[1957may10]

Other than all the great advice you get, I have one more suggestion to expand your capital base if you really believe in your method:

401K accounts are very restrictive and in general you cannot trade within your company 401K. However, nothing says you cannot rollover your 401K into a self directed IRA. I trade options, spreads... using my IRA in addition to taxable accounts.

I also agree with @1957may10, among others: Keep saving, keep compounding your 20% while working your day job. One day in the not too distant future, you will realize you no longer need a day job and can trade full time for a living. How do I know? Been there done that.

If I were you, I won't ask friends and family to co-invest. Why? If you make money, it is their gain but if you lose money it is your loss. No win doing that.

I’m glad to hear realistic smart voice. 100% true.

 

[d08]

I guess I was figuring that my portfolio performance would serve as proof of concept for managing OPM, and that it would be easier to convince backers with strict risk controls in place. But now that I have the proof of concept, I can't figure out the second part.

The average return will not quite scale with risk, so my Sharpe will decline if I increase risk. That is fine if I am managing my own money, but again that was not the original goal. Maybe it should have been.

That can be difficult. I would rather aim for family finances because convincing a stranger without connections is a daunting task. Might be obvious to you but be careful that you don't enter into a contract which will reveal your work. There's a lot of predators out there.