Compounding trade position formula

[viewtek]

Morning all,

Thanks for reading, I am trying to establish the correct formula for changing an entry price when compounding short and long positions on stock trades. there are multiple factors to consider in this but an example is;

You enter a short position on the asset at entry price of $1000 with a position margin of $10 at 10x leverage, this means you have a trade value of $100.(position margin x leverage = trade value)

If the asset was to move to $700 and I wanted to add another $35 for example onto the trade at 10x leverage meaning an additional $350 in trade value how can I calculate the change in trade entry price?

I understand if I enter a trade at $1000 with trade value of $100 and then at $500 asset price I add a further $100 my entry price will now be $750 as I have doubled the trade value at half the original entry price. What im not sure about it calculating the prices at less obvious intervals.

Also it would be great to know how to calculate a change in entry price due to a change in leverage either increased or decreased.

Apologies if this is not clear in my explanation Thanks for your help.

 

[JeffM]

I am fairly sure that a formula can be worked out that is easy to calculate, but none of the terms that you use are familiar to me. What does "compounding long and short positions on stock trades" mean? Does "entry price" mean the strike price? Are we talking American or European options, and does that make a difference to what you want to measure?

There are basically four things you can do with options: buy a put, buy a call, sell a put, or sell a call. If you buy, you pay a premium. If you sell, you receive a premium. If you are selling options, those can be covered or naked.

Your example looks to me as though you are buying a put option, a contract that gives you the right to sell the underlying asset at the strike price. If the market value of the underlying asset falls below the strike price (the option is in the money), you can either sell the option or buy the underlying asset at less than the strike price and exercise the option to sell at the strike price.

It also looks to me as though what you want to do is to compute a weighted average premium for options on the same underlying asset (and same expiration date?). Am I anywhere close to understanding what you are asking about?