Enron Mail

From:zimin.lu@enron.com
To:greg.whalley@enron.com, john.lavorato@enron.com
Subject:EOL WTI Historical Trade Simulation - more profitable trading
Cc:
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Date:Tue, 2 Jan 2001 19:44:00 -0800 (PST)

Cc: vince.kaminski@enron.com, stinson.gibner@enron.com
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X-From: Zimin Lu
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Please ignor my previous mail regarding the same issue, which contains some
typos.



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 and the half bid-offer spread
is $1 for simplicity, we take 5
trades of short positions, the total MTM for that day is
(-5-4-3-2-1)*10,000=-$150,000 and total trading
volume is 50,000 BBL short. If per trade volume is 50,000 BBL, we take one
trade, the total MTM is
-5*50,000= -$250,000. Thus the net difference between the two trading
strategies is $10,000 for that
particular day.

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 factor of 3. Almost in all
cases, I saw increased profitability. See the colume marked "Change" for
dollar amount change in millions.

Please let Stinson or me know your thoughts on this.

Regards,

Zimin Lu

x36388



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