Ok kut2k2, here is a challenge for you. I am short CL and short OVX. Tell me what proportion of my account I should allocate to each position assuming these are my only two positions. Assume any nice round number for account size you'd like, since the answer should be a percent anyway. IMO, if you use fractional-f you get the wrong number. If you use leverage space, you get closer but probably still incorrect.
oh shit man, a tribute to Orson Welles? He was just the story teller. How bout a tribute to Citizen Kane? Without him there would be no story (or San Francisco Chronicle for that matter.)
So you named this thread "Rosebud" because it was started shortly after Orson Welles' birthday?? That's ... different. OK, thanks for not leaving us hanging like the "Obvious" thread OP.
How could I possibly answer that with out having your trade return history? Optimal trading fractions aren't made in a vacuum.
Here is the number my model is spitting out. 14% of account size distributed to the two positions [N.B. 14% is a huge number for the model to allocate. That is how confident it is in this trade]. SSo if your account size is $100,000, this bet would allow you to allocate $14,000 to the two positions. So assuming 1:1 ratio (it isn't for me since the model thinks OVX is way more overvalued than CL, i.e., 3:1), that would be approximately 2 CL and 2 OVX. Notice just how hard it is as a retail trader to make money in markets. $100,000 is nothing when you are allowed to risk 14% no "leverage" (futures are leveraged). Risk more and one unlucky sequence of days you blow out. Without at least $1,000,000, you have to risk too much to make a living. Oh the other hand, 14% of 1M is $140,000, which means you can have approximately 20 CL and 20 OVX on assuming 1:1 based on margin requirements: 1 QM ~ $2500, 1 OVX ~4000 Now we are talking. EDIT: Notice that if all you are making from trading on $1M is $50,000 a year, you are taking horrible risks, since you can get a 5% risk-free interest rate account on $1M. You have to do well above $50,000 a year on $1M to justify it, unless you are gambling.
Briefly considered buying BC to hedge the short CL since I have the beginnings of a model that tells me when those are out of whack. While it said that the current spread between the two should be a dollar more than it is (~$8), I don't have all the pieces in tact to make a principled trade. So just staying the course. EDIT: Philosophically, BC and CL should probably trade close to parity. But Philosophy and markets are on opposites sides of the universe.