SteadyOptions is an options trading forum where you can find solutions from top options traders. Join Us!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

How SteadyOptions Calculates Performance


Our readers know that our returns have been tracked by Pro-Trading-Profits, an independent third party website that tracks performance of hundreds investment newsletters. They provided an excellent explanation how to analyze and compare performance of different trading systems. 

AGGREGATE vs. ROI

 

When you start looking at the different ways in which trading results are analysed, you’ll notice that they fall into two broad categories, Aggregate Analysis and Return on Investment analysis. Most investment services use versions of Aggregate Analysis which is a slippery slope into results that are at best misleading, at worst, deceptive.

 

Let’s say, for example, that a service did one trade in the month. They make 10% on that trade. According to Aggregate Analysis, they would then claim that they had made 10% for the month. But did they?

 

In another instance a service does 4 trades for the month, averaging 10%. They claim, according to Aggregate Analysis, that they made 10% for the month. Really?

 

And probably the most common example is when they’re calculating yearly returns. Say they did 20 trades for the year and the sum of all those trades (that is, the return for each trade added together) was 100%. Their claim, according to Aggregate Analysis, was that they made 100% return for the year.

 

How most services report returns

 

So all Aggregate Analysis does (and this is where its name comes from) is add the results of the individual trades together. And you can understand why a service would do that – it’s not only simple but, most importantly, it shows off their performance in the best possible light. Hey, if you could do one trade and make 10% a month, why wouldn't you subscribe?

 

Because you haven’t actually made 10%, that’s why. Not in the way that most people would think about trading or investment returns. 10% return assumes that you allocated your whole account to that single trade - which of course is insane.

 

Let’s assume you have a bank of $10,000 and you’re risking 5% per trade because you’re trading options and options are risky. So that’s $500 maximum per trade. The trade makes 10% which is $50, so you’re out for $550.

 

What return did you make for the month?

$50 / $10,000 = 0.5%

 

No, you did not make $1,000, as the 10% return suggested you would. You only made 0.5% because, normally, returns are calculated based on the total investment. And your total investment wasn't just the $500 you put at stake for that particular trade, it was the entire $10,000 you have in your trading account, because while it’s sitting there in your trading account it isn't doing anything else. You can’t have it invested elsewhere earning money for you – it has to be in your trading account so you can practice proper money management and risk allocation.

 

How SteadyOptions reports returns?

 

  1. We will always report our returns based on the whole account. The performance of the model portfolio reflects the growth of the entire account including the cash balance. Some services consider a $500 gain on a $1,000 investment to be a 50% return when the whole account is worth $10,000. We consider this to be a 5% return — and that is the honest way of doing the calculations.
     
  2. We also always report performance based on the same allocation. Imagine a service making 3 trades per month and making 10% per trade. They would report 10% return. That means allocating 33% per trade. But wait - what if you need to adjust the trade? You absolutely need to keep at least 20% in cash for adjustments, so your real return is 8.0%. To add insult to injury, if they make only 2 trades in a certain month, they would still report 10% return. That means allocating 50% per trade. But how could you do that if you usually make 3 trades? 
     
  3. Our Model portfolio is based on starting value of $10,000, compounded monthly and reset every year.
     
  4. We start with $10,000 each year and compound as the year progresses. Initial full position is $1,000 (10% of the portfolio) and half position is $500 (5% of the portfolio). The allocation for each individual trade is based on 10% of the current value of the performance tracking portfolio (5% for half allocation trades).  This means that a 10% allocation  when the portfolio is at 10K is smaller than a 10% allocation as the portfolio value increases. For example, a trade closed at the end of 2018 when the portfolio was around 20K had a 10% allocation of around $2000. This is simply following the standard for the performance reporting.
     
  5. Therefore, the dollar gain/loss for each trade in the performance tracking will likely be different from the dollar gain/loss of the official trade.  This is because of both the 10% allocation size for the performance tracking changing as the portfolio value increases and also because option trades cannot be allocated at an exact dollar amount.
     
  6. For example: FB trade on 12/28/17 (last trade of 2017) produced 40% gain. If we make 40% on $500 it is $200. But we base the positions on the new portfolio value at the end of each month (23,551 at the end of November 2017) so full position is $2,355 and half position is $1,177. 40% of $1,177=$471, so the portfolio increased from 26,014 to 26,485. This is what compounding means.
     
  7. There might be a slight difference in reported performance and actual performance for the 10k portfolio due to the fact that we cannot buy partial contracts. For example, if we make 10% on a trade, we will always report $100 gain (10% on $1,000 trade), adjusted for compounding. For trades requiring $800 margin the actual gain on $10k portfolio is $80, and for trades requiring $1,200 margin the actual gain is $120, but we will always report $100 gain.

There are a lot of other dirty tricks that some services use to push up their numbers. It might include reporting based on "maximum profit potential", calculating gains based on cash and not on margin etc. You can read my article Performance Reporting - The Myths And The Reality for full details.

 

Still skeptical? Why not to join us and see by yourself how we are different from other services. Please refer to Frequently Asked Questions for more details about us.

If you liked this article, visit our Options Trading Blog for more educational articles about options trading. 

 

Related Articles:

Subscribe to SteadyOptions now and experience the full power of options trading at your fingertips. Click the button below to get started!

Join SteadyOptions Now!

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Real-time trade sharing: entry, exit, and adjustments

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Subscribe to SteadyOptions now and experience the full power of options trading!
Subscribe

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • SPX Options vs. SPY Options: Which Should I Trade?

    Trading options on the S&P 500 is a popular way to make money on the index. There are several ways traders use this index, but two of the most popular are to trade options on SPX or SPY. One key difference between the two is that SPX options are based on the index, while SPY options are based on an exchange-traded fund (ETF) that tracks the index.

    By Mark Wolfinger,

    • 0 comments
    • 429 views
  • Yes, We Are Playing Not to Lose!

    There are many trading quotes from different traders/investors, but this one is one of my favorites: “In trading/investing it's not about how much you make, but how much you don't lose" - Bernard Baruch. At SteadyOptions, this has been one of our major goals in the last 12 years.

    By Kim,

    • 0 comments
    • 872 views
  • The Impact of Implied Volatility (IV) on Popular Options Trades

    You’ll often read that a given option trade is either vega positive (meaning that IV rising will help it and IV falling will hurt it) or vega negative (meaning IV falling will help and IV rising will hurt).   However, in fact many popular options spreads can be either vega positive or vega negative depending where where the stock price is relative to the spread strikes.  

    By Yowster,

    • 0 comments
    • 775 views
  • Please Follow Me Inside The Insiders

    The greatest joy in investing in options is when you are right on direction. It’s really hard to beat any return that is based on a correct options bet on the direction of a stock, which is why we spend much of our time poring over charts, historical analysis, Elliot waves, RSI and what not.

    By TrustyJules,

    • 0 comments
    • 465 views
  • Trading Earnings With Ratio Spread

    A 1x2 ratio spread with call options is created by selling one lower-strike call and buying two higher-strike calls. This strategy can be established for either a net credit or for a net debit, depending on the time to expiration, the percentage distance between the strike prices and the level of volatility.

    By TrustyJules,

    • 0 comments
    • 1,472 views
  • SteadyOptions 2023 - Year In Review

    2023 marks our 12th year as a public trading service. We closed 192 winners out of 282 trades (68.1% winning ratio). Our model portfolio produced 112.2% compounded gain on the whole account based on 10% allocation per trade. We had only one losing month and one essentially breakeven in 2023. 

    By Kim,

    • 0 comments
    • 5,886 views
  • Call And Put Backspreads Options Strategies

    A backspread is very bullish or very bearish strategy used to trade direction; ie a trader is betting that a stock will move quickly in one direction. Call Backspreads are used for trading up moves; put backspreads for down moves.

    By Chris Young,

    • 0 comments
    • 9,484 views
  • Long Put Option Strategy

    A long put option strategy is the purchase of a put option in the expectation of the underlying stock falling. It is Delta negative, Vega positive and Theta negative strategy. A long put is a single-leg, risk-defined, bearish options strategy. Buying a put option is a levered alternative to selling shares of stock short.

    By Chris Young,

    • 0 comments
    • 11,130 views
  • Long Call Option Strategy

    A long call option strategy is the purchase of a call option in the expectation of the underlying stock rising. It is Delta positive, Vega positive and Theta negative strategy. A long call is a single-leg, risk-defined, bullish options strategy. Buying a call option is a levered alternative to buying shares of stock.

    By Chris Young,

    • 0 comments
    • 11,514 views
  • What Is Delta Hedging?

    Delta hedging is an investing strategy that combines the purchase or sale of an option as well as an offsetting transaction in the underlying asset to reduce the risk of a directional move in the price of the option. When a position is delta-neutral, it will not rise or fall in value when the value of the underlying asset stays within certain bounds. 

    By Kim,

    • 0 comments
    • 9,655 views

  Report Article

We want to hear from you!


 

Hi all,

you write:

"Our Model portfolio is based on starting value of $10,000, compounded monthly and reset every year.
We start with $10,000 each year and compound as the year progresses. Initial full position is $1,000 (10% of the portfolio) and half position is $500 (5% of the portfolio)."
 

Compounded monthly means that you base the positions on the new portfolio value at the end of each month. All full positions in a month are 10% of the new portfolio value at the end of the preceding month?

 

Share this comment


Link to comment
Share on other sites

2% per month with IB. Those who trade with Tradier for $40/month or tastytrade have their commissions impact lower than 2%/month.

Share this comment


Link to comment
Share on other sites

can i start with capital usd2300 in tdameritrade for this service?

Share this comment


Link to comment
Share on other sites

Hi Kim

I had a questions about Monthly performance reporting. Is it based on the Trades opened date or Trades closed date? 

I mean I am sure there would be several trades taken almost near end of month and they would usually be closed in the next month. These trades are reported when closed in the new month? I would assume so but wanted to confirm this.

 

Share this comment


Link to comment
Share on other sites
Guest Optionyes

Posted

Hi Kim,

Question 1: In #5 '' But we base the positions on the new portfolio value at the end of each month'', why is it based on the end of each month and not the end of each previous trade? For example, if we take the same FB trade of 2017, why is the half position based on the $23,551 of the end of November 2017 and not the $25,826 that is the amount right before the FB trade?

Question 2: You said you trade allocations (10%) or half-allocations (5%). If we have $10,000 in the account, that would be respectively $1,000 and $500. What if the trade costs $350? or $800?

Share this comment


Link to comment
Share on other sites

This is addressed in bullet #7:

There might be a slight difference in reported performance and actual performance for the 10k portfolio due to the fact that we cannot buy partial contracts. 

The trade alert always specifies "The number of contracts is per 10k portfolio and represents the closest number of contracts for 10% allocation."

So some trades might be $900, some $1,100 (for full allocation).

Share this comment


Link to comment
Share on other sites

Sorry, missed your first question.

This is addressed in bullet #3:

Our Model portfolio is based on starting value of $10,000, compounded monthly and reset every year.

We could compound after every trade (which would increase the returns), but technically it would assume that we have only 1 trade open at any given time, and open a new one only after the previous one is closed, which is not the case. Compounding monthly is much more conservative method of calculating returns.

Share this comment


Link to comment
Share on other sites

Dear Kim

When you post trades in the performance list, could you please describe them as earnings if suitable?

This would really help me a lot to keep track.

You have posted analysis per kind of trade e.g. calendars, straddles, ...  do you still do so and where to find those?

Thank you

Share this comment


Link to comment
Share on other sites


Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs