More pro-value sizing calculations

Previously I had started using same sizing on my daytrades, I was up to 5 contracts for each when I shifted over to same value instead, due to it proving to be a better all round plan.

Something I noticed today, not really terribly relevant but interesting none the less, is that the average option price based on trade value based on same value sizing is much lower than the average real option pricing based on historical trades. But I will ignore that for now and try another way of calculating potential profits based on historical trading numbers.

My previous option price average was $2.61.

My overall profit per contract was $19.

I have traded 196 trades to date.

Using a $1000 trade value:

- same sizing 3.8 contracts per trade or 744 contracts

(I should be using 3 as partials cannot be traded)

- same value is 6.9 contracts per trade or 1352 contracts

(6.9 is accurate as it is an average of trades between 2 and 12 contracts)

A) Same sizing yields $14,136

B) Same value yields $25,688

These need to be adjusted for commissions.

Old commission rate totals:

A) $5,388

B) $6,604

New commission rate total:

A) $3,840

B) $4,752

A note about the same value contract count:

Same value trading is higher due to the lower option prices allowing to trade up to 20 contracts per trade. The range, adjusted to fit the $2.61 average price, leaves me with prices from 81 cents to $4.06 possible and sizes from 2 to 12 contracts. Figuring that there are about 10 trades per price level to spread it out evenly allows a trade size average much higher than using a straight $1000 divided by the average price. As a result a 12 contract trade will yield a higher profit than a 2 contract trade based on the 19 cent average profit. The trouble with this may be that it artificially inflates the profits on the smaller sized trades as they may have typically smaller per contract gains. I am making the assumption that the same is true for the larger trades as 19 cents is a very small move in a $3 option. In fact that move on the smallest price in the range of 81 cents is 23.5% and in the highest range of $4.06 it is only 4.7%. Lately our targets have been in the 20% range for the daytrading... so these numbers are not that far off.

Jeff.