John Nyaradi

Boring Bonds Become More Interesting

Let's say that in a $100,000 trading account you usually risk 1% of equity, or $1,000 per trade. In a standard ETF with a 10% stop loss, you would invest $10,000 for a risk of $1,000.

In a leveraged ETF you could invest $5,000, use a 20% stop loss to account for the 2x movement compared to the underlying index and achieve the same 1% portfolio risk, thus effectively achieving a 1x portfolio risk with a leveraged ETF.

By cutting your position size in half, you can get 1x portfolio exposure risk to these markets.


On Jul 01 02:05 PM morph366 wrote:

> "Position size needs to be carefully considered if an investor wants
> just 1X exposure to this market."
>
> I'm not sure that I understand the remark above from your article.
>
> The two short leveraged funds you mentioned will carry twice as much
> volatility risk as a non-leveraged holding and with twice the potential
> reward/loss. How would position sizing address that?

Boring Bonds Become More Interesting

Hi, Reluctant Quant,

thanks for your very good comments.

I agree completely,
John Nyaradi