High returns

[osho67]

On Elitetrader on the Options there is a thread "Understanding Greeks". In that thread Crimsin Tyde says "my returns are only 8-14% per month".

My question is how can high returns like this can be achieved. I had put the question on elitetrader but did not get any reply.

Experienced traders on this board might be able to give me an understanding on such high returns. Could CrimsonTyde might have meant 8-14% per year?

Thanks

 

[JonnyT]

Probably meant per month.

JonnyT

 

[TheBramble]

Yes it was per month.

Osho, on very sparse historical information from t2w and I didn't do too much research, 20% per month seems an achievable target - for those that re making profits .

 

[Salty Gibbon]

A 14% return per month on a US$ 25,000 pot is US$ 3,500, or approx US$ 150 per day.

For a day trader this is easily achievable.

 

[osho67]

Sorry, probably I have not understood . Does this mean the returns are 96-168% anuualised. (subject to that sort of returns are there everymonth)- ie you can more than double your money?

 

[osho67]

Salty Gibbon

This guy is talking making this sort of returns in Options. Is ot possible and the crucial question is -HOW?

 

[BBB]

Read Sheldon Natenburgs book on options. Its all you need to know about options.

Options offer perhaps the highest leverage there is. If you get options right, these figures are nothing spectacular/average. Of course, due to the leverage, if you get them wrong you'll be bust. Of course, achieving these figures will not come over night. probably about 2 years worth of solid work min.

 

[Salty Gibbon]

I wouldn't touch options osho. I have had very nasty experiences with these in the past - with someone else's money - not mine thank goodness.

 

[TheBramble]

SG - ditto - but it was my money!!!

High leverage - yes.

Get it right - NO!!!!

And I thought I knew what I was doing (don't we all).

BBB - "Sheldon Natenburgs book on options" - which one is that?

 

[RogerM]

Osho - he'll definitely mean 8 - 14% per month. Theoretically these returns are easy if you get your trading strategy right.

For instance, with $25k in your trading account, you can daytrade $100k worth of stock, so you could daytrade 1000 shares in TASR. If you can capture $1 per day ( and TASR routinely moves $5 or more), and if you can do this 20 days per month, you'll have a return of $20,000 which is 80% per month. Easy, huh?! Except I doubt that anyone here is doing that. Certainly I'm not - but it is clearly possible.

Equally with options, if you choose the right trade, you can easily get similar returns - in theory at least. Every day there are options which double or halve in value - and if you can identify these then high returns are there for the taking. But I think you need to be able to trade the underlying with consistent profits first because these geared plays will seek out any weakness in your trading plan far more ruthlessly.

Tony - Sheldon Natenberg's book is "Option Volatility and Pricing", and is the finest book around on options trading in my view. Not a primer, so you'll ideally have some pre-knowledge on the basics, but a great follow up to Lenny Jordan.

http://www.amazon.co.uk/exec/obidos...24753/sr=2-1/ref=sr_2_3_1/202-1779714-1375047

 

[BBB]

I think he only has one book. Its called something like Option Volatility & Pricing Theory. It was the bible of (most) option floor traders.

 

[osho67]

Thanks, very very interesting

I am now coming down to earth. My strategy is writing covered call options on us stocks. All the stocks selected are of market cap 30bn or more. I have also sold some puts safeguarding myself with a put buy at a lower price. I am only doing one month expiration. My returns for previous 3 months is 1-2% per month.

So further question is which sort of strategies will produce so high returns . Any guidance?

Thanks

 

[sidinuk]

With highly leveraged instruments like futures it is feasible to double your money every 4-6 weeks if you are actively trading your whole account AND willing to accept a lot of risk/large drawdowns. I.e. none of this maximum 1-2% risk stuff, that won't make much unless you have a large account.

Of course you can only really do this with a small account, the larger the account the more psychologically damaging the losing trades would be. Ie a 50% drawdown on a £10k account is only £5,000 - little problem, on £2m, a £1,000,000 drawdown could be psychologically devastating!

Secondly, the larger your account the more contracts you can trade but you'll see more slippage with 200 ES contracts than 5 so your system becomes less effective, further increasing the drawdowns.

It is very feasible to take £5,000 to £1,000,000 inside a year, but you need to start with taking high risks and gradually reduce the risk as your account grows. Oh, you also need a positive expectancy system with an edge, which most traders don't have.

 

[osho67]

well said, sidinuk, thats why I said I am falling back to earth !!!!!