I have a variety of different accounts, and different risk tolerances. But let me try to answer how I decide position sizing.
On the whole, I use volatility to decide position sizes. If I am trading Eurodollar / BAX future spreads (short term US and Canada interest rate spreads), then using a large notional that might be many times my total portfolio size makes sense as this spread barely moves. On the other hand, if I am shorting TSLA into the manic rise, then I might only be short 2% or some other small size of my account.
I remember talking to one hedge fund manager who told me his portfolio was 40% short TSLA, and I thought that was absolutely insane. Yet, if someone told me they had bought out of the money CNY calls (which are notoriously cheap) for 200% of their portfolio, I would barely bat an eye.
So, when we are talking about my specific stocks, I will use the same calculations. If I am buying XLU (a utility ETF), I will buy more than CCS (single name homebuilder). How much different? It then depends on how much I like the positions.
The MOST IMPORTANT THING TO REALIZE is that I use volatility and not notional size to determine position sizes.
As for how much total leverage I will use? In a calmer market, I have tons of leverage because I trade a lot of fixed-income spreads. One of my favourite trades - the steepener (long 2s and short 10s for example), doesn't move that much and usually carries well.
But in this environment, I have toned everything down. Way down. This is crazy volatility. I don't want to get forced out of positions as they whip around.
Hope this helps. I promise when things settle down, I will go through portfolio construction a lot more.
It's just being so crazy, that it would seem too confusing to see all the flailing around that I am doing trying to manage stuff.
I have a lot of trades that are too thin to talk about. Little arbitrages or value stocks that are thin.
In terms of big thematic stuff, it will vary from 3 to 10. Part of the reason for doing this new format is that I want to force myself to be more accountable and list positions more formally. However, the market has basically been crashing from the moment I started, so it makes no sense.
When things settle down, I intend to list all the thematic ideas and put stops. I just don't want to do it in these crazy times. Not only that, I am being a lot more nimble right now. I might get rid of positions more quickly than usual because of the heightened volatility. All the pro traders I know are being more nimble. They keep trying to take stabs on both sides, but they aren't getting married to any positions.
I promise to talk about this more when things settle down. I even have portfolio ideas that I want to discuss. Lots of things to add value to slower moving accounts.
I'd be interested to know too...do you follow a % of portfolio risk approach where max loss can't be more than 1% for example, or something different.
I have a variety of different accounts, and different risk tolerances. But let me try to answer how I decide position sizing.
On the whole, I use volatility to decide position sizes. If I am trading Eurodollar / BAX future spreads (short term US and Canada interest rate spreads), then using a large notional that might be many times my total portfolio size makes sense as this spread barely moves. On the other hand, if I am shorting TSLA into the manic rise, then I might only be short 2% or some other small size of my account.
I remember talking to one hedge fund manager who told me his portfolio was 40% short TSLA, and I thought that was absolutely insane. Yet, if someone told me they had bought out of the money CNY calls (which are notoriously cheap) for 200% of their portfolio, I would barely bat an eye.
So, when we are talking about my specific stocks, I will use the same calculations. If I am buying XLU (a utility ETF), I will buy more than CCS (single name homebuilder). How much different? It then depends on how much I like the positions.
The MOST IMPORTANT THING TO REALIZE is that I use volatility and not notional size to determine position sizes.
As for how much total leverage I will use? In a calmer market, I have tons of leverage because I trade a lot of fixed-income spreads. One of my favourite trades - the steepener (long 2s and short 10s for example), doesn't move that much and usually carries well.
But in this environment, I have toned everything down. Way down. This is crazy volatility. I don't want to get forced out of positions as they whip around.
Hope this helps. I promise when things settle down, I will go through portfolio construction a lot more.
It's just being so crazy, that it would seem too confusing to see all the flailing around that I am doing trying to manage stuff.
So then what is your portfolio risk target? And on average how many "ideas" do you have in your portfolio?
I have a lot of trades that are too thin to talk about. Little arbitrages or value stocks that are thin.
In terms of big thematic stuff, it will vary from 3 to 10. Part of the reason for doing this new format is that I want to force myself to be more accountable and list positions more formally. However, the market has basically been crashing from the moment I started, so it makes no sense.
When things settle down, I intend to list all the thematic ideas and put stops. I just don't want to do it in these crazy times. Not only that, I am being a lot more nimble right now. I might get rid of positions more quickly than usual because of the heightened volatility. All the pro traders I know are being more nimble. They keep trying to take stabs on both sides, but they aren't getting married to any positions.
I promise to talk about this more when things settle down. I even have portfolio ideas that I want to discuss. Lots of things to add value to slower moving accounts.