Model portfolio size

[Kim 7,512]

As you know, we utilize 10k model portfolio with 10% allocation. That means that maximum trade size to fit the 10k portfolio is around $1,000.

However, we have decent amount of trades that exceed the $1,000 size. Many members trade them as "unofficial" trade ideas, but I would like to be able to incorporate at least some of them into the official model portfolio.

There are 2 possible solutions:

 

1. Increase the size of the model portfolio to $20k.

2. Leave it as 10k but incorporate some of the larger size trades, with a comment that this trade is not suitable for 10k portfolios.

I created a poll and would like some feedback.

[Darcy MacDonald 24]

I don't really care about the model portofolio size so much, I'd just like to see more official trades, so however that gets done would be great.

[Kim 7,512]

1 minute ago, Darcy MacDonald said:

I don't really care about the model portofolio size so much, I'd just like to see more official trades, so however that gets done would be great.

Our average number of trades is around 10-12 per month. I'm aiming only for highest probability trades that also have decent liquidity.

However, there are many unofficial trades that members share, so those who want to trade more always have this option. And yes, it has nothing to do with model portfolio size.

[Dan27 7]

I have no idea how many people actually only trade in a $10,000 account; however, my hunch is that those that do are often not successful. They are paying $1,000+ a year to be members - which is 10% of their account. Those that have such small accounts are probably not experienced traders/investors and are thus more likely to make mistakes (i.e. chase) which further reduces their likelihood of success. I honestly think that this service is not suitable for novices. Perhaps I'm making unfair assumptions - and I truly do not mean to offend anyone or sound elitist (I am far from an expert options trader). My points: (1) upping the model portfolio to $20,000 will probably not alienate many members; and (2) it may be a more suitable perceived barrier to entry.

[sokl 1]

for me, it will be nice if you can format a new model portfolio where trade like bwc can be included continuously.

[YAAY 23]

@Dan

Dan I learned to trade options on this site.  I tried several others before and found this one far superior.  Having this 10,000 "hypothetical" portofolio helps in determining how many contracts you need to buy to maintain the optimum trade size for your individual portfolio via a simple calculation.  I prefer it to stay only for this purpose. 

 

[ykotowitz 18]

20,000 is preferable from a reporting point of view. If you transact larger amounts than permitted for the 10,000 portfolio, how will you report the results and performance?

[Dan27 7]

2 minutes ago, YAAY said:

Having this 10,000 "hypothetical" portofolio helps in determining how many contracts you need to buy to maintain the optimum trade size for your individual portfolio via a simple calculation.

Excellent point.

[Paul 322]

Even with a 20,000 model portfolio, ADBE nor FDX would fit using a 3:1 ratio.  The math is easier using a 10,000 size, especially for newer traders.  The more experienced traders here can more easily do the math on oversized trades and make the proper adjustments.  Myself, I don't follow the suggested allocations exactly as I have been doing it for awhile.  I just make sure my total allocation to all positions doesn't exceed 60%.

 

[Gamma Stalker 10]

Dan,

As a new subscriber, I agree! You've hit the nail on the head. Even with years of experience, I'm not an expert and struggle to follow, unwrap, and digest all the content, here. It's difficult to imagine how overwhelmed a beginner trader might feel. We're blessed and fortunate to have a larger trading account, but we've probably learned to keep it that way by absorbing more than a few blows to the gut and ego. There are some really bright traders here and we can all learn something.  Albert Einstein once stated, "To punish me for my contempt for authority, fate made me an authority". I'm no authority but feel, in years of trading, fate has punished me nonetheless and every time I feel like I've got it, a new punishment comes along. 

[Kim 7,512]

Few points to remember/clarify:

• Increasing portfolio size to 20k does not mean more trades. We will still stick to 10% allocation, so average trade size will be around 2k instead of 1k.
• If we stay with 10k and place trades that are larger than 1k, I will still report it as 10% of the portfolio for simplicity. The performance reporting is never perfect anyway - if we have trade that costs $750 for example, it is 1 contract per 10k portfolio, but I still report it as 10% not 7.5%. 
• I believe there are still many members with 10k portfolios. Some have more money to invest but select to start with 10k till they learn the strategies and fell more comfortable to invest more. Others see it mostly as educational resource and the subscription fee as tuition, worth paying regardless of what they make during their first months or years.
• "The math is easier using a 10,000 size" is a very valid argument.

Right now there is a slight majority for 20k portfolio, but at the end of the day, it is not a big deal anyway. If we switch, members with 10k portfolios will not be able to take the larger trades anyway. Same holds if we stay with 10k.

 

My preference right now would be to stay with 10k to make the math easier for everyone, and when we take larger trades, just mention that those trades exceed 10% if your portfolio is only 10k, and are not recommended for smaller portfolios in terms of allocation.

[SBatch 2,364]

2 minutes ago, Kim said:

Few points to remember/clarify:

• Increasing portfolio size to 20k does not mean more trades. We will still stick to 10% allocation, so average trade size will be around 2k instead of 1k.
• If we stay with 10k and place trades that are larger than 1k, I will still report it as 10% of the portfolio for simplicity. The performance reporting is never perfect anyway - if we have trade that costs $750 for example, it is 1 contract per 10k portfolio, but I still report it as 10% not 7.5%. 
• I believe there are still many members with 10k portfolios. Some have more money to invest but select to start with 10k till they learn the strategies and fell more comfortable to invest more. Others see it mostly as educational resource and the subscription fee as tuition, worth paying regardless of what they make during their first months or years.
• "The math is easier using a 10,000 size" is a very valid argument.

Right now there is a slight majority for 20k portfolio, but at the end of the day, it is not a big deal anyway. If we switch, members with 10k portfolios will not be able to take the larger trades anyway. Same holds if we stay with 10k.

 

My preference right now would be to stay with 10k to make the math easier for everyone, and when we take larger trades, just mention that those trades exceed 10% if your portfolio is only 10k, and are not recommended for smaller portfolios in terms of allocation.

@Kim Do you intend to increase your maximum total number of trades outstanding?  For example, if you intend to keep that number at 6 and one of them exceeds the 10% size on the $10,000 portfolio, those with small accounts will be further alienated as they will see the number of official outstanding trades that they can participate in drop below 6 even though the model may have 6 open.

[Yowster 8,003]

I think a big reason this came up is that many of the hedged straddle trades are too expensive for a 10K portfolio - I don't recall the model portfolio size being much of an issue before this type of trade.   So, for some trades, the short to long ratios are adjusted down to 1:2 to make them fit into the 10K portfolio.  And, if the stock price doesn't move before shorts expire you wind up making more, but if the stock price does move significantly then the profits will be significantly lower than a trade using a lower ratio.   Maybe a compromise is to keep model portfolio at 10K but to include some wording on applicable trades like "you may want to consider a lower short to long ratio if your typical trade allocation is larger, as this lower ratio will perform better when there are gamma gains".    I think most members already using these trades get this point, but we're always getting new members.

[Kim 7,512]

1 minute ago, SBatch said:

@Kim Do you intend to increase your maximum total number of trades outstanding?  For example, if you intend to keep that number at 6 and one of them exceeds the 10% size on the $10,000 portfolio, those with small accounts will be further alienated as they will see the number of official outstanding trades that they can participate in drop below 6 even though the model may have 6 open.

We aim to have no more than 6 trades open, but there are periods that we have more than 6. This will not change. In any case, we will not have more than 1 trade at any given time exceeding 1k, and probably no more than 10% in total. We still want to accommodate 10k portfolios, but at the same time, there are some trades that I feel could really benefit members, but exceed 1k.

@Yowster you are absolutely right, it is mostly for hedged straddles. And some of them (like FDX) cannot fit 10k portfolio even at 2:1 ratio. 

[jbthree 6]

I agree with @Yowster. Changing the portfolio size may scare off new subscribers. Instead, I would list a 2:1 ratio for $10K portfolios, and the other ratio for those with a larger portfolio.

The change may make reporting SO results more difficult, however.

[Kim 7,512]

Yes, we stay with 10k. I will try to make more "unofficial" trade ideas for larger portfolios.

[izzo70 22]

Any advice or links to previously discussed guidelines for increasing portfolio size and allocation using official SO trades?

[craigsmith 357]

What type of information are you looking for?

[izzo70 22]

If i increase portfolio size from 10k - 50k can i continue using official SO strategies and just change the allocation to 5k.  Do the official SO trades tolerate this easily?  I'm curious how larger portfolio members trade and would welcome any advice on how and when to step up.  

[craigsmith 357]

It's come up before in the past, and the original recommendation from Kim was the SO strategies would best work for a portfolio up to 100K. Since then, the fund has been started and @cwelsh is using these strategies trading 100's of contracts. 

 

I think at some point you would need to be very selective and OI would be an issue. Maybe @cwelsh can give us another update as to how the fills are going.

[Kim 7,512]

You have to remember that trades in the fund are executed in a different matter since it is an institutional account. In addition, fund has more positions and smaller allocation per trade (usually 3-5%), and also spreads the bets between different strikes and/or expirations.

We still don't recommend more than 100k for retail accounts.

[craigsmith 357]

Ahhh, that is true. I forgot that part about how these are getting executed.

 

Thanks for the clarification.