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>> Hi Ray:
>> If I can determine the number of units to trade for stock based on
>> the formula, but how can I determine the number of units to trade for
>> this stock's option? Do you have any suggestion please?
>> Thank you
>> Eric
> Hi Eric:
>
> The safest way to go is to use the delta of the option as a proxy
> for the stock. In other words, let's say that after the optimal f
> exercise, you determined that you could buy 10 shares. If the delta
> of the option is .33, then 30 options (10/.33)would be appropriate.
>
> There is a potential problem however. Since buying options is a 100%
> risk of invested capital, you must make sure that the total
> potential loss conforms with your comfort level.
>
> Ray
Good point Ray. The use of options instead of the underlying stock
will dramatically change the biggest loss and geometric average trade
results. It would be an apples-and-oranges comparison to try to apply
a stock system's Optimal f calculations directly to options.
Incidentally, Ralph Vince devotes a small section of "Portfolio
Management Formulas" to options, because of their unique
characteristics.
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