Friday, August 20, 2010

8/20 Daily Summary

Today will be a very brief posting. I am very grateful for the way the market behaved this week and how the position is looking going into its first weekend. More often than not I've noticed that going throught the 1st weekend with profits is half the battle on these trades, as it builds up reserves and allows you to manage the capital without the pressure. That being said, I'm looking for the exit, and as soon as that light goes green I'm out ;)

For now, enjoy the weekend, I sure will!


Anonymous said...

Hoe do you calculate a profit of around 7%, is that based on your buying power effect of 37,500?

Gustavo's Trades said...

No, the figure TOS publishes as buying power effect includes the total margin on the trade plus the initial credit, therefore it is not the real picture.

Because this is a credit position, when I entered the trade I got a credit to my account. TOS includes this credit in the buying power figure. For example: Say I put the trade and receive $6,500 credit, but the total margin on the position (max I can lose) is $6,000, TOS will show $12,500 as the buying power effect, since it doesn't want me to use the initial credit on other trades and lose more than I should.

What I DO use is the initial margin requirement when I enter the trade. The easiest way to figure this number in TOS is to look at the chart at expiration and mouse over the extrems of the chart, this is the max ammount of money you are risking on the trade (aka what Would I lose if I let the trade expire beyond my long contracts without doing anything about it). That's the number I use for my calculation.

Also worth noting: When you do make adjustments, say you cut and roll, this number will very likely increase because you're adding to the position and it no longer stays as a balanced position. I do not increase my max risk because of it, I simply continue to manage the P/L as per the original value so that my monthly cashflow is consistent. That requires that you keep a reserve of capital in your account so that you can make adjustments.

Hope this helps,

Gustavo's Trades said...

Just to make this a bit more clearer, pull up my risk profile from 8/19, I had the expiration chart in this image, instead of the 7 day incremental curves.

Now, look at the line around 1720, you'll see that if I let the trade expires anywhere bellow 1720 I'd be losing less than $20K, (the actual figure is $16,405), that's the number I use in my calculation.

See the chart: