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From:zimin.lu@enron.com
To:greg.whalley@enron.com, john.lavorato@enron.com
Subject:EOL WTI Historical Trade Simulation - more profitable trading
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Date:Tue, 2 Jan 2001 09:15:00 -0800 (PST)

Cc: vince.kaminski@enron.com, stinson.gibner@enron.com
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Greg and John,

I found that by reducing the volume per trade and increasing daily number of
trades ( keeping the
total volume per day constant), we can be more profitable. This is partially
because in a trending market
we lose less money by following the market more closely. For example, suppose
market move from
$30 to $35. If per trade volume is 10,000 BBL, we take 6 trades of short
positions, the total MTM for that
day is (-5-4-3-2-1)*10,000=-$90,000 and total trading volume is 60,000 BBL.
If per trade volume is 60,000 BBL, we take one trade, the total MTM is
-5*60,000= -$300,000.

Therefore it seems that by reducing per trade volume and increasing the
number of trades, we can be more
profitable as a market maker.

I rerun a scenario that Stinson sent to you on Dec. 27 where he used per
trade volume of 30,000 BBL.
I reduce the number of trade to 10,000 while increasing the number of trades
by 3. Almost in all
cases, I saw increased profitability. See the colume marked "Change" for
dollar amount change.

Please let Stinson or me know your thoughts on this.

Regards,

Zimin Lu

x36388



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