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Good morning List,
Here are my components for the second round of O-Funds:
Short Gold (GC J2)
Long Copper (HG H2)
Long Emini (ES H2)
Long 10-Year Note (TY H2)
If this where an X-Fund approximate margin required would be $4335.00
With the first round of X and O funds closing out at the end of today's trading, how does one asses the performance?
Up until now we have been looking at return on initial capital, and ignoring margin requirement. As prudent speculators/traders should one not also be looking at return on margin (capital at risk), as well as return on maximum Equity drawdown (sleep-deprivation index)?
Let's consider the X-Fund-Y1 composed of grains: By smart utilization of spreads the designer was able to reduce the margin to $473. Currently this fund is $200 in the money, which equates to a 50% return on risk capital, with very little volatility. In fact this fund moved at about the same pace at which the grain components are growing.
On the other side of the coin, is return on initial capital important for X-Funds? (John had mentioned in a prior posting that the initial capital should be reset to the original amount at the start of each new X-Fund.) Traders are now looking for a dominant component in a fund, with the other components buffering the negative effect or enhancing the positive effect of the dominant component (see CBOT product spotlight). With a dominant component in a fund and sufficient volatility one could trade the fund in either direction and still make money.
Consider Mark Brown's fund that headed south, though the margin requirement was high, had you shorted this fund with a trailing stop, you would have been left with a handsome return.
Has anyone got some ideas on how we should assess the performance of these funds?
The next challenge would be to design a trading system around the X-Fund components that will outperform the X-Fund over its 2-week life span.
Regards,
Barry Viljoen
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