I have a hard time getting my head around this.
Let's say you have a strategy that consists in buying one future spread, for instance CL Z7-Z8 (crude oil dec17 minus dec18). It's easy to calculate the PnL of that strategy:
PnL = quantity * lot_size * (spread(t) - spread(0))
where spread(t) is the spread at time t and spread(0) is the level at which you entered.
Now, to calculate the return of that strategy, you'd have to assume that this corresponds to a certain capital that's at risk.
Return = PnL / InvestedCapital
Given that entering the future spread will demand an initial margin call, and subsequent maintenance margins (potentially infinite), how does one "assign" a capital to that strategy?
Is it just a matter of choice? Can tell myself: I'm committing 100k to that strategy, and with that I can buy the amount of spreads that I think will not make me go bust, which I'm assessing corresponds to 10k of initial margin calls?
But if that's the case then I could just as well commit 200k, and buy the same 10k of margin calls, which means I would be half as leveraged.
Is there a usual way of doing this? For instance where we say that the capital that's at risk is the amount you would loose if the spreads goes 7 stddevs out, or something like that?
Sorry if I'm not being very clear, it's kind of messy in my head right now...