We make different assumptions.
bid price is 8200
ask price is 8250
spread is 50
it's kind of break-out system with a range of 500 600 (w/o fees for both positions).
Yes, assuming both legs are closed at the same time (constraint that doesn't apply to me).
@fillippone, as usual your posts are instructive, thought-provoking or both. (That's how you amassed that disgusting mountain of merits in no time.) Even if in an amusing way, I was making a point. It took me a bit to digest your input and articulate a reply, so here I'm back.
I see now. If you count unrealized P&L as real, then it's just as you say. I still think it's called UNreal - ized for a reason.
Very funny.
Merited.
When I said that unrealized P&L is, well, unreal, I failed to add "until you hit the wall": the wall of nonlinearity at liquidation. If you manage to avoid that wall, you statistically win the game.
I don't have formal training in economy or finance, but the mathematical advantage of playing both sides can be seen by integrating P&L over time along random walks with reasonable properties. (Perfect absence of memory in the Markov chain sense is not even required. More something like ergodicity in the sense "the graph will eventually get back here, for sure!")
Even in highly volatile environment Mark To market is the best way to think of your trading position, because MtM has to do with the current price, so it has to do with the future movements.
You assume P&L is instantly real, since current price is the best possible estimate of future price. Which it could be
if there were a universal way to price risk and opportunity cost. Which I assume there isn't.
My own assumptions? "I'll never hit that wall because I keep my gameplay far from the sidelines." Taken to extremes: if I had infinite capital, I would not worry a bit. In other words: my bankroll is finite so I do worry of course, but I have low (negative?) opportunity cost for my play stash - it's better for me to use it to get moar btc at good odds than to collect dust in the freezer. As for the risk, I can't quantify it precisely, but it's bounded by the play stash amount if I stick to my rules.
If BTC goes down, you are sad, because you are losing on those 9 bitcoin. Then you decide to buy another bitcoin and you are long 10 bitcoin and some (less) cash. You are in a very similar position than point c. but with less cash to spend on more bitcoin buying.
Play money has an exclusive set of rules, such as "move excess play money to the cold stash when the amount reaches X", or every 2 months, or some combination that works for me. Another way to see it is: never let fiat enter the equation. Fiat for me is only relevant when I need it, and it comes from the main stash anyway. Once you've put away excess totaling 100% of your play stash, you're playing with house money. Once it's 200%, your risk still doesn't go to 0 (ergodicity hits both ways), but you have one "free" round where you can be wrong about never hitting the wall and still remain in overall profit.
This reasoning could be very different if there were options available to trade. But this is not the case.
I subscribe to your point about options. Most of my games are played with futures or swaps. Swaps are nice for the short side, since in a bull market they usually collect funding interest. I would
love to have options available too! They would lower the cost of "insurance" a lot, if settled in kind. At the moment, options involve fiat unless I jump through hoops, so I do the best I can without them.
Numerical disclosure of sorts. Over the last week, I just gained 1% of the play stash with my short position by repeatedly closing it in small profit and reopening it higher. Last trade was 0.2% profit, new entry point just 10$ higher and 8% larger. Present short leg size a little over half the long (which is losing ~8% atm). A few more weeks like this and I will get even. If it goes down, I'm 8% better placed to profit again, while the margin buffer for the long has grown a tiny bit. My liquidation is well below 4k, and if I close the ultra-winning short before that happens, I'll gain about $500-$600 more breathing space, pushing it below 3.5k.
Yes, it is a bit of work actually. So what? A nice little hobby that pays out - an additional way to grow my HODLstash without forgoing, for example, a fancy restaurant or some other cozy reward. And I get to discuss it with some fine gentlemen too, which is a pleasure in itself.
Sorry this was a long post, and terribly OT at that - almost as if this discussion was about bitcoin!
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