Does anyone have any suggestion on how to determine position size based on volatility and leverage?
For example
daily range = $3, which risk $300 per contract.
maximum of risk is 2% of equity [50000] = 1000
leverage of products = 4 and 12 times
Do you have any suggestion on determining the position sizing for each leverage 4 / 12?
Thank you for any suggestion
Eric
How to determine position size based on volatility?
More description about managing leverage and volatility for
Thank you for your reply
More description about managing leverage and volatility for position sizing
Usually, I can find leverage of trading products around 10 times, therefore, I feel comfortable to set 10 as my default leverage. For a rare case on bull market, I can only find 5 times for Call Option and 25 times for Put Option, therefore the problem for position sizing appears. My invested equity is $1000, if I expect the market moving up, then I can buy Call at 5 times leverage within $1000 equity, on the other hands, if I expect the market making top and turn down, then I can buy Put at 25 times leverage with $1000 equity.
Assume ATR = $3, which equal to 3% of stock price at $100
For Call, if the market moves up $3, then profit will be 5 x 3% = 15% of invested equity.
For Put, if the market moves up $3, then loss will be 25 x 3% = 75% of invested equity.
Therefore, if I insist on investing $1000 equity for both Call and Put, it will make my equity curve more volatile. For Call, the leverage [4] is less than my expected leverage [10], so I would like to increase the invested equity to match the performance of leverage [10]. For Put, the leverage [25] is more than my expected leverage [10], so I would like to decrease the invested equity to the performance of leverage [10], but I don't know how to approach for this situation. Does anyone have any suggestion?
Thanks you for any suggestion
Eric
More description about managing leverage and volatility for position sizing
Usually, I can find leverage of trading products around 10 times, therefore, I feel comfortable to set 10 as my default leverage. For a rare case on bull market, I can only find 5 times for Call Option and 25 times for Put Option, therefore the problem for position sizing appears. My invested equity is $1000, if I expect the market moving up, then I can buy Call at 5 times leverage within $1000 equity, on the other hands, if I expect the market making top and turn down, then I can buy Put at 25 times leverage with $1000 equity.
Assume ATR = $3, which equal to 3% of stock price at $100
For Call, if the market moves up $3, then profit will be 5 x 3% = 15% of invested equity.
For Put, if the market moves up $3, then loss will be 25 x 3% = 75% of invested equity.
Therefore, if I insist on investing $1000 equity for both Call and Put, it will make my equity curve more volatile. For Call, the leverage [4] is less than my expected leverage [10], so I would like to increase the invested equity to match the performance of leverage [10]. For Put, the leverage [25] is more than my expected leverage [10], so I would like to decrease the invested equity to the performance of leverage [10], but I don't know how to approach for this situation. Does anyone have any suggestion?
Thanks you for any suggestion
Eric