I asked a simple question. I've not made any claims. I've not asked anyone to predict my future success. I'm new to this forum, and am dissapointed by how quickly posts degenerate to pretentions, accusations, competition, and the like. Let me rephrase my question- Is it reasonable to grow a 10K account to 15K over a 3 month period, swing trading, with controlled risk and good money management? Would it then be reasonable to continue at the same rate, reinvesting all profits, reaching ~50K by year end? Could this rate of growth be sustained from year to year? I'm just asking a question, which I accept is quite simplistic. If the answer is no, I'd be grateful if someone would point out the flaws and limitations of this way of thinking, and comment on what may slow growth as capital increases. I'm attracted to options because of the flexibility and the capability to manipulate risk, not to speculate with added leverage.
I tried to answer your question by referring to probability of ruin formulas. You're essentially asking for a consistent 1.5% average ROE per day. That would be *phenomenally* good. If you can do that well, you will likely open a hedge fund, take a management fee, 30% of everyones' profits, and no longer risk your own equity. The probability of ruin would likely put you into the 90% range. (i.e. a 90% chance you'll go broke). A couple things to consider: 1) How much of your capital is at risk at any one time? As a wasting asset, options should not be treated with the same rules as stocks (i.e. 8%/30% total, etc). You could wake up tomorrow and have half your valuation gone. 2) How are you preventing a blowout? Beta-delta neutral, balanced put-call ratios, etc are all nice hedging functions, but also reduce your profit substantially, making 1.5% per day harder. If you're not hedging, you're setting up for a big blowout. At a risk of bringing insult, I shoot for 2% ROE per week. By "shooting" for it, I mean, I've computed: 1) My average position size 2) The average number of trades I need to run per week 3) Adjusted for my average win-loss ratio 4) Limited by the volatility of the stocks and indicies I follow 5) Adjusted all of that by the maximum I'm willing to lose by including hedging or limited equity-at-risk. 1.5% per DAY is beyond my abilities. That's not to say its beyond everyones', but pointing the question back at you--is it beyond yours? I'm not insulting you, I'm just saying that you probably know best what your trading skills are. You also know how much you're willing to risk a blowout. If you're putting up 100% of your equity each quarter and are willing to lose it all, you will have a much more volatile (but higher chance) of reaching your 400%/yr goal.
1.5% is well beyond my capabilities. I'm not a sophisticated investor by any stretch. In fact, I'm barely out of the starting blocks. My risk management is as complex as being selective in stock selection, being a net option buyer and limiting my maximum downside loss to 1% of my total account value. (the $ value of which is nothing to boast about). However, I know someone (distantly) who has been in the markets for almost 30 years and has done it all - from being a market maker, to managing hedge funds, to sitting on the Options Council (I won't give specifics, for obvious reasons). They passed the hurdle of absolute financial freedom a long time ago, and attest to profits well in excess of 1.5% ROE / day as far as their active trading account is concerned. They mostly swing/position trade options. Not only do they boast impressive profits, but inform me that many veteran investors (usually ex-professional) are producing similarly enviable and consistent results. I simply wanted to understand how realistic or unrealistic this particular goal might be for the typical retail investor. (e.g. me) And I'd like to understand if and how ROE changes as the capital base increases, assuming all else remains constant.
I think this site needs a FAQ. Every week, another newbie comes along and asks yet another variation of the same question. FAQ: Q: Can I make X% returns? A: <b>The answer is always MAYBE!</b>
I posted under the impression that this was a site frequented by experienced and knowledgeable traders. I still believe that is the case. To this end, I was simply asking for some informed opinions on a hypothetical scenario And I realise there is no concrete, absolute answer. I was asking for opinions. Fine, maybe my question was trite or hackneyed, but I don't understand why I have to defend myself. And the foundation doesn't lie in greed. A compelling goal is instrumental in any endeavour, regardless of it's achievement. At least from my experience. So I think it would be best if we all disregard the first question. I'll chalk it up to hindsight * * * * * * * ** * * * * * * * * * * * * * * * * * * * * * * * * * If anyone would care to offer their thoughts on my 2nd question I'd be most obliged. Does ROE change as capital base increases? To put it another way, is there an appreciable difference in getting from 10K to 15K as compared to getting from 100K to 150K. Or are the numbers just bigger.
If anyone would care to offer their thoughts on my 2nd question I'd be most obliged. Does ROE change as capital base increases? To put it another way, is there an appreciable difference in getting from 10K to 15K as compared to getting from 100K to 150K. Or are the numbers just bigger. _______ That's a much better question. At low six-figures, you'll still have about the same ease of liquidity when moving in and out of options positions- you won't be 'heavy' yet at this size. In practice, the trip from 100K-150K is generally much smoother than the trip from 10K-15K. Since you'll probably be less concentrated in any one idea, your swings will become lower and less dramatic, percentage-wise.
Why do you think that "the trip from 100K-150K is generally much smoother than the trip from 10K-15K"? If you follow the same risk management rules and the same trading rules, the results should be similar in long term (3 months is relatively short term for swinging, and even daytrading). To regularly and smoothly grow your equity 50% over three months you must have a really good trading system (with a high probability of win) that allows you to risk a large percentage of your equity with conservative money management.
Since you'll probably be less concentrated in any one idea, your swings will become lower and less dramatic, percentage-wise.