I just lightened up my portfolio quite a bit after the moves this morning... so that gives me time to post musings, and get some feedback from people. After a big move like the one we saw in crude recently (15%+ over the past month, 5%+ over the past few days).... I end up with decent gains, and a net short portfolio. I have two options at that point: let it ride, or buy back (existing short) calls to balance out direction. So far, I've chosen to hit for average: I take the least volatility approach, bank my profits, and buy back calls. It occurs to me (after talking to some investors) that perhaps others might prefer that I hit for power: try to profit off of the fat-tail moves. I.e., don't buy back my short calls in crude right now, and just let it ride. If the current move continues, my gains go up very quickly. What do you guys do? Go for the home run at the expense of a lower batting average (Sharpe), or just hit for average? Right now my performance tends to have a negative skew, and maybe going long the fat-tail moves would balance things out.
I been trading the same long term method in Commodities for past 18 years and what works for me is taking profit on half at 2.5k, 5k or 10k depending on the market as I follow 42 markets and just track weekly charts after that. I don't trail stops and there are times where it comes back to breakeven, but all my backtesting concludes that I would never make the huge trades. Since I use monthly, weekly and daily, I seek duration trades of several months. I believe in day trading to hit for average but longer term be a power hitter.
I'd really love to be Barry Bonds, power and average. Of course, if there was such a thing as steroids in the fund management business... we'd be popping them like mints. Anyways. I just don't know if I want to start 'engineering' my return distribution... but you know, why not? If investors care about skew, then I should cater to them. It's like learning to hit the ball to the opposite field, if they start playing you to pull. (Something Barry Bonds never bothered to do, by the way.) I love sports analogies. Believe it or not, really does make it easier for me to think about some stuff.
Hit .300 you'll always have a job. Guys that hit 35 jacks but low average/inconsistent, go team to team, you hear their name on Sportscenter and the universal reaction is "that guy is still in the big leagues?" If you can perform like Barry, they will assume you are on steroids (analogous to insider trading, HFT?). Either way, they'll make a villian out of you
============= Two very different questions. a]When to take profits; generally prefer to really milk a trend for all its worth.Weekly /daily charts can help. z]But to put it simple, my favorite way or really milking a trend for all its worth; options get worth little very fast.Word to the wise. As far as collecting premiums ;Amen to that. Like my premiums collected in markets swing /position trade more than options @ present time. Amazing how some commodities / trends/trend differs so much
Do whatever gets you the highest CAGR to Max Drawdown ratio. That's what makes money. Then, adjust size to tailor your risk level to your investors' risk preferences.