we don’t know his other other holdings or how he has scaled this relative to those. It may not even be a hedge.
Journal of Empirical Finance... here we come! Lol, j/k if you think it's honestly a good trade I say go for it.
Its not a good trade, i earn my money with theta positive strategies. This is pure an cheap insurance for vix levels above 40. Do you know better low cost tail risk hedging strategies?
But what's the impact on your protfolio. what is the payoff even it cost you nothing. You do have exposures when market drops and you have to post margin before you close out with a net long postion. That's no free. 3 std dev out is not insurance.
The payoff was 100K in feb 2020. If you have a 500k portfolio it can hedge a 20% downfall. Its not perfect, but you can have more low cost hedging strategies. See the day results in 2020, there was no need to close out positions. Its tail risk, so insurance for > 3std dev down moves..
No offense taken SPY. The reason for the post was to intellectually challenge the concept/plan. The criticism is welcome.
you are saying that you profited 100k cash overall and your portfolio eventually came back to present value. If that’s the case, 8-10 delta would be a better trade if you run the math.
the backtest contains no profit taking. With a 500K portfolio you could take all off the table when you have a 20% drawdown. A 8-10 delta has much more risk to open. For > 3 std dev down moves you can better have 4 of 2.5 delta then 1 of 10 delta..