Hi how good is a strategy showing 0.73 percent weekly returns in virtual trading app of sensibull. Does it take into account all possible loss scenarios and is this return final on a long run?
0.73% weekly is darn good if you can achieve it consistently in my opinion, but no one can answer second part of the question without knowing what kind of trades you’re into.
Hi thanx for the reply sjerry, my question is about the returns shown in the strategy, are they based on the historical data, means if the strategy were applied in the past in nifty this would have been the return or based on some other thing?
Hi Anshuman
Let us consider this example and try to explain to the best of my knowledge-
- Funds needed - Funds needed in your account before you enter this trade
- Margin needed - Funds needed in your account once you have entered the trade
- Return - Return calculated as % of projected profit to Funds needed . This value changes if you change NIFTY Target or days to expiry
- POP - Probability of profit, 66% probability means. if you enter this trade on 100 different ocaasions, you’ll make profit of 3,368 rs for 66 times and make a loss of 11,633 rs for 33 times. (You’ll not be able to take the same trade on 100 occasions obviously, because VIX will not be same, interest rate will not be same so and and so forth)
Now a bit of explanation on how price of options and hence P&L of strategy and also the probability of profit is calculated
First Sensibull derives implied volatility based on current market price of the option contracts you have selected for trade. You can read more about it in their FAQ. This implied volatility is then the basis for calculating prices of option for different scenarios ie change in underlying, change in days to expiry etc.
The probabilities are based on implied volatility (equivalent to standard deviation), break even points and area under the normal (or whichever) distribution Sensibull sees fit.
So now finally to answer your questions
Does it take into account all possible loss scenarios?
Yes it does
** is this return final on a long run?**
If you mean by this, are the returns guaranteed then definitely no.
If you mean that out of 100 trades will I make profit 66% of times, again probability and max profit changes every day, its a moving target, But you can say that approximately if you select do 100 trades where probability while entering the trade was 66%, you should make profit on 66 instances. (Does not necessarily mean you’ll end up positive)
Are returns based on the historical data?
As mentioned earlier, the returns are calculated using implied volatility. Which is based on current option prices, which in turn are result of demand and supply, current market condition and they kind of reflect the mood of the market or future expectation.
For example just before the budget, VIX (ie Volatility) shot up, and for the same breakeven points the probability of profit would have been much lower than 66%.
Not sure if this answers your question or creates more questions.
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Wow Sjerry! No words to explain how grateful I am for this valuable information, am sure it’s gonna help a lot of other traders too who wanna trade using hedges.
I have a question about calendar spread, the IV of the current week options become zero at expiry but the next week options still have IV and the payoff graph changes shape drastically based on IV being low to high. Is there any way to manage these changes to maximize the payoff.
what is the calculation behind funds needed?