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Efficient Capital Allocation

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In a tastybite account, we want to trade small. Even if our risk is defined, we still like to trade small. We don’t want to allocate all of our capital into one trade. This is because if the market underperforms, bigger portfolios lose more money.

The study looks at efficient capital allocation in iron condors, and the results show that allocating more than 60% of our capital has diminished returns in the long run. Allocating 40% of our capital has the greatest performance in the long run. When the market underperforms bigger portfolios lose more money, so they have less money to trade with. Therefore, we like to trade small in tastybite accounts to protect against market underperformance.

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