http://firebones.disqus.com/enThu, 19 Feb 2009 22:18:14 -0000http://blog.firebones.com/2009/02/17/trades-with-too-much-complexity/#comment-6422414<p>I haven't yet. I would have avoided a 100% loss on all my USO calls, and probably saved some bad moves with GOOG calls. What's hard to tell is how many times I would have been stopped out on trades for which I averaged down--I think it probably would have been close to a push. If I could find a good source of historical bid-ask on options, I could figure it out.</p><p>A great example is my recent X puts. I bought a batch at @ 3.10, then another @ 2.10. Soon after the second buy, the bid-ask was something like 1.65-1.80 at one point (which would have triggered a 40% stop on the initial batch). I held, and later sold both lots at 3.10 for a 23% overall gain. I count that as one win of around 47% on the second batch, and a loss of transaction costs on the second batch. Had I stopped at 40% loss and ended the same way (i.e., held the 2.10 batch until 3.10), the overall trade would have been an overall -2% loss.</p><p>I repeated that pattern several times, averaging down on puts and calls for AMZN, SPY, NDAQ, BBY, etc. A tighter stop on the X trade would have stopped me out of both trades for a 20% loss.</p><p>My strategy would be totally different if holding stocks though, or in times of more normal volatility. I would then go with tight stops and be satisfied with a 40% win percentage.</p><p>3:1 is crazy--even factoring out the 15 in a row at the start, it's still about 2:1. The only thing I can say is that I was short on 85-90% of my trades during a time where there was a 30%+ drop in the market, so execution had little to do with it...it was primarily due to being on the right side of the trends.</p>firebonesThu, 19 Feb 2009 22:18:14 -0000http://blog.firebones.com/2009/02/17/trades-with-too-much-complexity/#comment-6418473<p>If over 5 months your winners outnumber your losers 3 to 1 that is exceptional! Did you go back and see what your profits would have been with various stop levels or different criteria for closing your positions? </p>mandelbrot1Thu, 19 Feb 2009 18:55:41 -0000