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AlexanderHamilton

Performance Explanation

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I'm using a model portfolio of 10k and allocating 1k (10%) per trade. We made 91 trades so far in 2012 and the average return per trade was 3.4%. That gives you total dollar return of $3,120. Since the maximum risk at any given time is $6,000 (6 positions), the ROI is 3120/6000=52%.

This is actually pretty conservative way to calculate it since an average number of positions is about 3-4, so average risk is about 3-4k.

The portfolio return is even more conservative since it is based on a total portfolio even though we never have more than 60% of our capital at risk. So at least 40% is always in cash.

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Thank you for the rapid response!

One final question, you mentioned that these results don't take into account commissions (as commissions vary from broker to broker).

What would the 2012 results be thus far if commissions were $1/contract, with no flat fee per trade. I could do the math myself, but I don't know how many legs are in all the trades, etc..

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Assuming an average trade of ~3.00, you would trade about 3 contracts per 1k position. For straddle/strangles, that would be total of 12 contracts. For RIC, 24 contracts. We had about 65 straddles/strangles - that's total of 780 contracts, and 25 RICs - that's total of 600 contracts. So the total is ~1380 contracts per 1k trade. That's ~$1,380 in commissions.

With IB (0.70 per contract, or maybe 0.75 including their hidden fees) it would be about $1,035 or $11 per trade. So the commissions would reduce the gains by ~1.1% per trade.

Total gain would be reduced from 3,120 to 2,085 if trading 1k per trade and using IB.

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Just one more comment.

Be very careful when comparing performance between different services. There are services which publish performance as SUM of all trades, even when they have more than one trade open at any given time. If I calculated my performance this way, I could advertise a 312% return in 2012 which of course would be a complete nonsense.

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Assuming an average trade of ~3.00, you would trade about 3 contracts per 1k position. For straddle/strangles, that would be total of 12 contracts. For RIC, 24 contracts. We had about 65 straddles/strangles - that's total of 780 contracts, and 25 RICs - that's total of 600 contracts. So the total is ~1380 contracts per 1k trade. That's ~$1,380 in commissions.

With IB (0.70 per contract, or maybe 0.75 including their hidden fees) it would be about $1,035 or $11 per trade. So the commissions would reduce the gains by ~1.1% per trade.

Total gain would be reduced from 3,120 to 2,085 if trading 1k per trade and using IB.

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I trade with IB and they told me last week that if the trade goes to the CBOE the extra fee per contract is .40. To be clear that is 2.80 for a one contract straddle.

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I trade with IB and they told me last week that if the trade goes to the CBOE the extra fee per contract is .40. To be clear that is 2.80 for a one contract straddle.

This might be true for direct orders, not if you are using Smart. I rarely pay more than 0.70 per contract.

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Your calculations are correct. And those returns have been achieved with only 10% allocation, which means that most of the time the portfolio was around 50% in cash. If you calculate ROI on the maximum capital of 6k (assuming 6 positions), it would be higher if compounded.

However, you need to remember that 2011 results have been heavily impacted by August 2011 meltdown - it caused 4-5 trades to double in matter of 2-3 days. I think it would be unrealistic to expect similar performance every year.

April 2012 was also a small loser.

What I like about those strategies is that they take a tail risk out of the iron condor spreads. If you allocate 10% to each position and have one IC and 2-3 earnings trades, even huge market move will cause the IC to lose money but the losses will be more than offset by the gains in the earnings trades.

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The 10% comes out of the latest portfolio value. So if I started with 10k, made 20% on my first 1k trade, the portfolio value is now 10,200 and the next trade will be 1,020. Of course unless you have hundreds of thousands of dollars, this is a bit theoretical, since you cannot buy partial contracts and the value of the trade will be approximate anyway.

I don't have an excel template but there is a post under the Trades forum with all open trades.

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Kim, is the "ROI based on max risk capital" also compounding? And do you happen to have the current model portfolio value and 2011 value net of the 75 cents per contract you are paying through IB? I got TOS to agree to give me a flat rate of 85 cents per contract which is pretty close to what youre paying.

Under what type of conditions is TOS willing to give .85 per contract? Given that I feel their software platform is better, and IB is not consistently $.70 a contract, this maybe a pretty good deal with TOS.

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Kim, is the "ROI based on max risk capital" also compounding? And do you happen to have the current model portfolio value and 2011 value net of the 75 cents per contract you are paying through IB? I got TOS to agree to give me a flat rate of 85 cents per contract which is pretty close to what youre paying.

No, the ROI is not compounded. 85 cents is pretty good rate. You can calculate the impact of commissions by simply reducing the average gain by ~1.2% - with those commissions, this is the approximate impact.

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So 4% average year to date would be about 2.8% net, correct? That's what you mean?

For 2012, yes, pretty much. For 2011, much higher, but the same idea.

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