In order for him to get a margin call with 220K cash in his account holding 1 ES, it would have to drop to ~300. The SP is not dropping to 300. And even if it did, it would take like 3 weeks because of the 20% per day breaker limit. So he doesn't need 220K to buffer the DD. Since you say you've never held overnight, here's some simple maths for you to clear it up... 1ES buffer = margin + cash + position. Margin=12,320 Cash=50K (an example amount) Position = 4400 = 0 (flat) ES drops 100 points to 4300. Plug in the formula. -12,320+50,000+(-)5,000 = 32,680 32K buffer Likewise, works the other way ES rises to 4500. -12,320+50,000+5,000 = 42,680
Risk-to-reward is everything, when executed well you become the casino. Most traders have no clue on how important this is & few will never get past their obsession with win rate.
How do you calculate the risk/reward of an options trade? For example for this hypothetical LongCall trade: UnderlyingSpot=100 Strike=100 DTE=45 IV=30 r=0% q=%0 Premium=4.20 (r=risk-free-rate, q=dividend-rate; here both 0%) The risk is of course 4.20, but how to calc the reward part?
There was a good episode (252) on Chat with Traders with Yvan Byeajee. He discusses the "Intolerance of Uncertainty" and how the pursuit for high win rate systems is no bueno yet preoccupies many a beginner and struggling trader alike. The math works better for high R:R and counterintuitively provides more profitability despite low winrates.
%% Exactly right mostly. But a risk reward coin toss , silver, gold, copper or regular Fed reserve coin toss is much better than a coin flip , can be> 70.7% Overnite holds, for sure on some. Some not so much
human nature compels us to maximize the chance of a gain instead of maximizing the size of gains -this which works against us big time. This quote came from some famous trader, not sure who it was. The longer I trade the more sense it makes, here it is: "You can have a 15-25% win rate at 8R & get wildly rich, but very few will ever do it because it is not comfortable. What feels the best as a discretionary trader is never going to get you the big money, it's about managing discomfort."
%% Exactly, seldom pick some for diVdend/ trend may go past year end/ Oil stocks sector\ may downbend more by that tag end\ Even better with trend; dont overspend. I used Rhyme zone to help with the unknown.