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unless I totally don't understand the query, i'm not sure what role
expected-profit calcs have in money mgt (i presume mm = risk exposure stop).
mm would be more a function of risk inherent to the specific trade (distance
from stop-out to entry as a % of portfolio), which is a fn of market price
action and not profit expectation.
put another way, profit (expected or realized) = return, whereas money mgt
deals with the "risk" in the r/r equation.
re the open short v/s close short: profit is still the net difference
between what one got when one sold it for what one paid for when one bought
it, regardless of when in the transaction sequence the buy/sell occurred. so
profit would still be a function of "close short" in the denominator.
Gitanshu
From: "rudolf stricker" <lists@xxxxxxxxxxx>
Looking at my last weeks' short positions I wonder, what the "standard
procedure" to calculate "profit" may be for such cases ...
Following "profit = (money received - money spent) / money spent", I
would get (neglecting commissions for simplicity) "profit = (open
short - close short) / close short", which might result in nice values
near or at expiration ...
But should I include this kind of profit calculation into my money
management (based on past "probability distributions" for wins &
losses)? - Up to now I use "profit = (open short - close short) / open
short", which restricts my maximum profit to 100%. Even if this is
easier to handle, its imo not correct ...
But to include short positions more carefully into my money
management, I wonder how this can be done in practice?
To do it consistently, I would have to know a-priori the "close short"
price to select the best number of contracts at "open short" time ...
How is this dilemma solved appropriately in practice?
Any suggestions?
mfg rudolf stricker
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