Man Hours = Dollar Days... a novel twist on cashflow

In service industries the idea of man hours is well known and used all the time in billing and calculating costs. One man for the day is 8 man hours...two guys for the same day is 16 man hours. Seeing as this relates to cashflow in the industry, charging based on man hours is an efficient method of billing, I figure that I can apply something similar in my trading to use to figure out cashflow.

A normal trade with Optioneer, the strangle, creates a certain target dollar return for the trade which can be divided into daily returns... although the actual return does not work that way until the trade expires. So for trades a 2.00 point target is common. The cash return is 2 points X $250 or $500 less $78 commission or $422. I was aiming for no less than 1.9 points or $397 net, for an average trade this results in a $10.72 return per day in the trade.

Consider that I was happy with a minimum $10 per day return at that point then I should be equally happy with any trade that produces a $10 or more return per day no matter the target or the duration.

Back to the Dollar Days. If I consider $10 as the standard daily cashflow unit, as cashflow is more important than ROI even if one sort of goes hand in hand with the other, then I can treat the "cashflow unit" as "1".

The DecaDollar Day is the new unit... DDD.

In order to keep at or greater than the new DDD on all trades I have a nice colourful chart that I do not have time to figure out how to post here right now. Suffice it to say that there is a nice linear relationship that creates a nice easy target and lenience combination to always produce a trade that can generate a $10 per day return. The minimum point target for each duration is as follows:


Days / points

30 / 1.55
31 / 1.60
32 / 1.60
33 / 1.65
34 / 1.70
35 / 1.75
36 / 1.80
37 / 1.80
etc...

So if the trade is 35 days to expiry and the current target is 1.9 I can place the trade and set a lenience of 0.15, or accept a 1.75 point fill.


Using a DDD in a similar manner as a Man / Hour I would just have to figure out how much cashflow I want to see for a typical period. If I were to aim for a $10,000 year I would divide by 10 to determine how many DDDs I would need...1,000 DDD. divide by 12 for the monthly requirement, 84 (I round up). Considering that there are about 30 days in a month I would need (84/30) 3 concurrent trades each providing 30 DDD in that 30 day window.

Seeing as that would only take $14,000 to trade the potential here is good and steady income with relatively little outlay. Of course for each 460 DDD I can add another trade to the mix. 460/37 (average trade duration) is every 13 trades.

Some trades will fill higher and there may be a few losing trades so I might expect those to cancel each other out. As none will fill lower I may be short by a trade here and there. Also I may exit trades earlier when the over all target is close to being met which may drive the DDD unit value for that trade higher than the typical $10 and allow me to put the money in the next shortest trade right away. Keep it rolling.

I know, all this can just be done with dollars, but I had fun playing with the idea. It boils down to $10 per day for every trade as a minimum, adding trades when possible and sticking to the shorter term trades of 45 days or less as the market will allow.

I have now run out of stuff to talk about with regards to Optioneer, I have set a new trade for tomorrow and will plan on another next week if the market moves enough to warrant a new position at a new level.

Meanwhile, lots of work to clean up tomorrow and perhaps on to setting up Plan M next week.

Jeff.