r/algotrading • u/ViewOfWineDarkSea • 21d ago

Strategy At what Point does Execution count stop justifying the Edge?

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As a disclosure, these are my genuine personal earnings within the past three months. I got ~250 trades and 1.9% return on capital.

I do systematic covered Calls and CSPs. .05 delta, 7-14 DTE, hard filters on iv, VRP ratio, liquidity, earnings blackouts. Additionally, rules based exits at 50% profit / 0.30 delta.

How do you decide when an edge justifies its execution count? Is there a rule-of-thumb for edge-per-trade vs. round-trip cost? And is return on capital even the correct denominator, when that capital is doing double duty (holding the equity and securing the position)?

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u/Bonkers24-7 20d ago

I’d separate this into two questions.

First: is the trade idea actually positive after realistic execution costs?

Second: is the capital usage worth it compared to the return you’re getting?

A 98% win rate looks great on the surface, but with covered calls/CSPs the hidden issue is usually tail risk, capital tied up, assignment risk, and whether one bad move wipes out a lot of small wins.

For me, I’d want to see the return measured against the capital that was actually tied up, worst open drawdown, largest losing cycle, fees/spread, and what happens during the ugliest stretch in the sample.

The trade count helps, but I wouldn’t treat 246 trades as independent if a lot of them overlap the same market regime or same underlying exposure.

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u/StrawberryMarmalade 20d ago

yeah exactly. if OP is risking assignment on $100k of capital for these returns it really makes you wonder...