Next time, you know what to short , since everyone seems to have known it was going to zero.
How is an XIV lawsuit even possible?
- Thread starter prc117f
- Start date
No.
In the long term, shorting volatility is still a winning strategy. The key as always is position sizing.
If you win 50% 80% of the time and lose 100% 20% of the time, you are still way ahead. But this is true only if you kept your allocation under control.
In other words timing is everything.
Gee, I already knew that
Gee, I already knew that
What should be position sizing?
We use 5% of the portfolio, but it really depends on your risk tolerance. We are using options, so possibility of 100% loss is real.
For example, in 2017 we made 5 SVXY trades: +37%, +37%, +6%, +24%, +68%, and 5 VXX trades: +33%, +23%, +27%, +21%, +20%. That's total return of almost 300%. With 5% allocation, the impact on the whole portfolio was +15%. Similar return in 2016.
In 2018, the returns were +41%, -67% and -100%. Total return: -126%. Impact on whole portfolio: -6%. We are still way ahead.
No, it's not about timing. It's about position sizing. Completely different thing. With proper position sizing, you can maintain constant exposure to short volatility strategy and not to worry to blow up your account.
Why do you have such a low allocation if you trade it in & out?
Why should be position size for people who don't trade in & out? Is it less than 5%?
This is my personal risk tolerance. This is why my drawdowns are so low and I'm not looking for lawsuits.
If you are trading options on those instruments, possibility of 100% loss is real. In fact even two consecutive 100% losses. If you allocate say 20% of your account, after two consecutive losses your account is down 40%.