For options traders, there is a way to make ALL your capital work for you! Yes, you heard that right. Not sure what I mean? Keep reading...
You see, most options traders don't position size larger than 5% risk of capital...and most options traders don't put on more than 10 trades at a time. Making these assumptions, we can therefore conclude that you'll never use more than 50% of your capital towards buying power reduction.
This is a very inefficient use of your capital because that means half of it is just "sitting" capital (capital that doesn't go towards making money for you!). Solution you ask? Well, the solution is simple...just redeploy that capital elsewhere besides your trading account. For example, you can take that useless 50% capital lying around in your trading account, and put it into a savings account that say has a 2% annual interest rate...and voila!, now all your capital is being put to use! and you just gained an extra 1% return on capital annually!
I almost forgot to add...remember to position size as if trading capital were equal to the sum of the 2 accounts' values (trading & savings accs).
So for example, #units = 5% ( e1 + e2 ) / max loss per unit ....
e1 - represents trading account's value
e2 - represents savings account value
Hope this helps, enjoy! and please hit the like button.
You see, most options traders don't position size larger than 5% risk of capital...and most options traders don't put on more than 10 trades at a time. Making these assumptions, we can therefore conclude that you'll never use more than 50% of your capital towards buying power reduction.
This is a very inefficient use of your capital because that means half of it is just "sitting" capital (capital that doesn't go towards making money for you!). Solution you ask? Well, the solution is simple...just redeploy that capital elsewhere besides your trading account. For example, you can take that useless 50% capital lying around in your trading account, and put it into a savings account that say has a 2% annual interest rate...and voila!, now all your capital is being put to use! and you just gained an extra 1% return on capital annually!
I almost forgot to add...remember to position size as if trading capital were equal to the sum of the 2 accounts' values (trading & savings accs).
So for example, #units = 5% ( e1 + e2 ) / max loss per unit ....
e1 - represents trading account's value
e2 - represents savings account value
Hope this helps, enjoy! and please hit the like button.