Last post I mentioned diversification in trade type, price levels and timeframes. It reminded me that I could scale into a trade to try to effect some sort of similar idea, not really DCAing as I am looking to grow a core position by adding to it at key times.
In order to fudge against me I will use my minimum $2.40 per day yield based on a $1200 risk trade. Even though I already see that a SPY spread even at today's low VIX numbers can be much higher than that I would choose the safe trade as $2.40 per day lets me run the spread strike farther away from the price. This is 0.2% per day ROR or 6% ROR based on a 30 day trade.
So a quick 22 trades at 30 days per trade calculation leaves 660 trade days at $2.40 is $1584. I would want to optimize my trading to allow for certain overlaps depending upon my capital so I might run $2400 trades here and there. Regardless, this is for a comparison only anyway.
At most, four overlapping trades which uses up my $5000 base. That is a 31.7% return on the account base and I can add one more trade capability into the mix to start the compounding effect.
Scaling into this through purchasing shares directly in SPY in 10 share chunks. Buy at the good bottoms and hold through the top.
Buy at $70, $80, $90, $90, $100 and 6 shares at $104. Average cost is $87.93 for 56 shares. Current price is about $110 so $22.07 per share gain for $1236....if sold now. With a tight stop during this uncertain period it might get sold... maybe not. I can only make money as the price goes up and can only compound if I sell and catch a drop...if the drop reverses when I think it ought.
Meanwhile I am trading spreads and seeing profits while the price wallows each month as expiry dates pass. This way there is a cashflow. Buying and holding has no cashflow...although there is a slight tax advantage when it comes to capital gains
Jeff.
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