Consider I have a Meta strategy that includes:
* A Buy & Hold strategy that's always 100% long.
* A tactical short strategy that sometimes shorts 100%.
Currently, the MetaStrategy Metrics Report shows 200% Maximum Exposure, but in reality, it's only 100% when the B&H strategy is long. As a result, the Exposure and Effective Annual Return (EAR) are calculated incorrectly, since the calculator doesn’t recognize that when both strategies are active, their net exposure is actually zero.
The situation becomes more complex if I mix long and short strategies, which can offset each other at certain times. E.g. I have to set 200% leverage in MetaStrategy settings to avoid NSFs.
I understand that calculating exposure based on net positions (especially when the strategies involve different tickers) could be quite challenging, correct?
* A Buy & Hold strategy that's always 100% long.
* A tactical short strategy that sometimes shorts 100%.
Currently, the MetaStrategy Metrics Report shows 200% Maximum Exposure, but in reality, it's only 100% when the B&H strategy is long. As a result, the Exposure and Effective Annual Return (EAR) are calculated incorrectly, since the calculator doesn’t recognize that when both strategies are active, their net exposure is actually zero.
The situation becomes more complex if I mix long and short strategies, which can offset each other at certain times. E.g. I have to set 200% leverage in MetaStrategy settings to avoid NSFs.
I understand that calculating exposure based on net positions (especially when the strategies involve different tickers) could be quite challenging, correct?
Rename
Sorry, the exposure should not be zero if a long and short are both active. You're still exposed to the market and using capital and margin. It looks like it's calculating it correctly.
Can you please explain? Say, I'm long 100 SPY shares with Strategy 1. When Strategy 2 is short 100 SPY shares at the same moment, the real position on my account is: 100% money, 0% exposure. I'm not exposed to the market.
We still consider it 200% exposure. Your money is allocated and in fact you'll start paying margin interest.
If you don't like this you can even create your own customized Scorecard that calculates it differently for this very specific edge case.
I don't know of anyone who would do something like this in real life so isn't this a theorical exercise anyway?
If you don't like this you can even create your own customized Scorecard that calculates it differently for this very specific edge case.
I don't know of anyone who would do something like this in real life so isn't this a theorical exercise anyway?
Please forgive me, but I still dont' understand "Your money is allocated and in fact you'll start paying margin interest."
Consider I have a single broker account:
1. buy 01.01.2024 SPY +100 shares, strategy 1. Total SPY on brokerage account: 100
2. sell 01.07.2024 SPY -100 shares, strategy 2. Total SPY on brokerage account: 0
3. cover 01.01.2025 SPY +100 shares, strategy 2. Total SPY on brokerage account: 100
My yearly exposure is 50%, not 150%. Contrary to paying margin interest, I would get paid interest by the broker for half year on my free money at the account.
This is absolutely practical. I have many long strategies, and many short strategies. A lot of time I'm netto zero, although WealthLab would assume I'm 200% invested.
Results:
* wrong exposure, EAR calculation and many other metrics
* incorrect Interest on Cash and Margin interest calculation
* lots of NSFs that wouldn't occur in real life
Consider I have a single broker account:
1. buy 01.01.2024 SPY +100 shares, strategy 1. Total SPY on brokerage account: 100
2. sell 01.07.2024 SPY -100 shares, strategy 2. Total SPY on brokerage account: 0
3. cover 01.01.2025 SPY +100 shares, strategy 2. Total SPY on brokerage account: 100
My yearly exposure is 50%, not 150%. Contrary to paying margin interest, I would get paid interest by the broker for half year on my free money at the account.
This is absolutely practical. I have many long strategies, and many short strategies. A lot of time I'm netto zero, although WealthLab would assume I'm 200% invested.
Results:
* wrong exposure, EAR calculation and many other metrics
* incorrect Interest on Cash and Margin interest calculation
* lots of NSFs that wouldn't occur in real life
I thought you said you were 100% long and another 100% short.
Regardless we’re not changing anything here so you’ll have to adapt.
Regardless we’re not changing anything here so you’ll have to adapt.
Look at it this way, in WL8 "Exposure" measures how much of your capital is allocated to trades. It's not the same as the market exposure that you're talking about.
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