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Outperforming the S&P 500
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Outperforming the S&P 500

  #41 (permalink)
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I believe that many options sellers consider return = return on risk, not return on capital. So if you have $100k in capital and you have 10 winning trades where you risked $10k per trade and made $1k each, that's a 100% return on risk (10 trades * 1k gained per trade on a risk of 10k = 10k) but return on capital is only 10%. That's because the risk, if measured (naked call options can theoretically have unlimited risk), the risk/reward reward ratio in options selling usually requires a lot more risk than reward but it's usually OK, if managed properly, because the win rates are usually very high. But if you're trying to raise capital for others to invest in they're going to measure return as return on their capital, every last cent that they place with you. This is why there aren't a lot of CTAs or hedge funds that are solely options sellers because they are collecting pennies in front of steamrollers and the portfolio volatility can be too painful with just one or two slip-ups.

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  #42 (permalink)
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SMCJB View Post
I'm not as bold as many here to fully reveal my activity and results, I wish this was an elite thread rather than a public one, but I will say this. Since going out on my own about 6 years ago my worst year was 2013. In 2013 my trading profits (excluding expenses but including brokerage obviously) was just over 25% of my beginning year trading capital. This understates my actual return as I continually withdraw money for my trading account to a) live off, since its my primary source of income and b) to pay tax's!


Big Mike View Post
Probably 95% of participants are Elite only anyway, so just create a new thread in Elite area if it makes you more comfortable keeping general public away.

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  #43 (permalink)
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Big Mike View Post
Probably 95% of participants are Elite only anyway, so just create a new thread in Elite area if it makes you more comfortable keeping general public away.

Mike

Participants maybe, but not observers!
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  #44 (permalink)
Market Wizard
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Big Mike View Post
Assuming the results each year are not reliant on the prior year, can you discuss the starting balance? I don't care about a dollar amount, just if it's basically flat year to year or if you increase size regularly.

I've been working to increase size so am curious about the rate in which others have succeeded at doing it.

Sent from my phone

Trading is my sole source of income since 2001 so I don't add any additional funds to my trading account. But I do make withdrawals for living and taxes.

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  #45 (permalink)
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ron99 View Post
Trading is my sole source of income since 2001 so I don't add any additional funds to my trading account. But I do make withdrawals for living and taxes.

Sorry, let me clear that up. By "increase size" I did not mean adding funds to your account, I meant trading larger volume. If your figures are % return on capital, then the size of the account on the first trading day of the year would impact the results for the year, so I was trying to understand if your account grows year to year or if you keep the same size.

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  #46 (permalink)
Market Wizard
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SMCJB View Post
I'm not as bold as many here to fully reveal my activity and results, I wish this was an elite thread rather than a public one, but I will say this. Since going out on my own about 6 years ago my worst year was 2013. In 2013 my trading profits (excluding expenses but including brokerage obviously) was just over 25% of my beginning year trading capital. This understates my actual return as I continually withdraw money for my trading account to a) live off, since its my primary source of income and b) to pay tax's!

Use the XIRR spreadsheet I put in post #25. You can then account for withdrawals and get a true ROI.

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  #47 (permalink)
Market Wizard
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Big Mike View Post
Sorry, let me clear that up. By "increase size" I did not mean adding funds to your account, I meant trading larger volume. If your figures are % return on capital, then the size of the account on the first trading day of the year would impact the results for the year, so I was trying to understand if your account grows year to year or if you keep the same size.

Mike

The accounts grow or decrease based on trading profits/losses. I don't adjust account size each year.

So right now after my good 2014 year I am trading much larger volumes of contracts.

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  #48 (permalink)
Market Wizard
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Big Mike View Post
Can you expand on the risk side a bit?

Mike

Sorry but no. I don't track risk.

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  #49 (permalink)
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ron99 View Post
Use the XIRR spreadsheet I put in post #25. You can then account for withdrawals and get a true ROI.

XIRR works quite well from a practical point of view. The numbers however won't quite agree to actual return for the year.

The most accurate way to calculate your returns would be to use CAGR. However, once you start adding and withdrawing capital, things quickly get complicated. To correctly account for this, you would need to assign "shares" and a "NAV per share" to your equity. As an example, a $10,000 account could be assigned a NAV per share of $10 and then you would have 1,000 shares (10 * 1,000 = 10,000). If the account now has $1,000 profit ($11,000 total account value), then the NAV per share would be $11 ($11,000 / 1,000 shares). Withdrawing that $1,000 would then decrease your number of shares by 90.9091 (1,000 / 11). You should use fractions to guarantee accuracy of the NAV per share.

Thus, based on the above, NAV per share is affected by performance and your number of shares are affected by deposits / withdrawals.

You would then calculate CAGR on your NAV per share and this will give the most accurate representation of your returns. The math for CAGR can be found on Ed Seykota's Trading Tribe website. I can't recall if XIRR overstates or understates vs CAGR as it was a long time ago that I changed over for my accounting. However, using XIRR in Excel is just a lot less complicated.

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  #50 (permalink)
Market Wizard
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grausch View Post
XIRR works quite well from a practical point of view. The numbers however won't quite agree to actual return for the year.

The most accurate way to calculate your returns would be to use CAGR. However, once you start adding and withdrawing capital, things quickly get complicated. To correctly account for this, you would need to assign "shares" and a "NAV per share" to your equity. As an example, a $10,000 account could be assigned a NAV per share of $10 and then you would have 1,000 shares (10 * 1,000 = 10,000). If the account now has $1,000 profit ($11,000 total account value), then the NAV per share would be $11 ($11,000 / 1,000 shares). Withdrawing that $1,000 would then decrease your number of shares by 90.9091 (1,000 / 11). You should use fractions to guarantee accuracy of the NAV per share.

Thus, based on the above, NAV per share is affected by performance and your number of shares are affected by deposits / withdrawals.

You would then calculate CAGR on your NAV per share and this will give the most accurate representation of your returns. The math for CAGR can be found on Ed Seykota's Trading Tribe website. I can't recall if XIRR overstates or understates vs CAGR as it was a long time ago that I changed over for my accounting. However, using XIRR in Excel is just a lot less complicated.

How does this factor for timing of withdrawals? If you withdraw on the 2nd vs on the 30th, this would affect ROI for the month.

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