Latest monthly, Apr% YTD% 12Mon%: Alpha -0.1% -0.9% -4.4% Dim +0.4% +0.3% -1.2% Div -0.4% -2.1% -9.3% Evo +2.4% +5.3% +6.3%
I got that impression, reading your previous message. Which is why I included my opinion of not changing the volatility target setting, even though this one day was very bad. I view it as an outlier on the bad side. There have also been outliers on the good side. But those are never a reason for reducing the volatility target setting .....
Some more data points. AHL were down 2.5% on Wednesday, commensurate with their vol target, but were still up month to date (though I'd expect them to give more back yesterday). Also it's interesting to note that I have actually moved up the fundseeder leaderboard (was 8th a few days ago, now 3rd as of close May 17th data). Most of the guys ahead of me had short gamma / market maker style trading (relatively low vol, high % of winners, short holding periods, wins and losses roughly the same size, or losers larger). They mostly got crushed; on a vol like for like basis by much more than I did. GAT
Thanks for the colour GAT. The recent market drop got me thinking about Interactive Brokers solvency during a crisis, as I currently have most of my money with them. Does anyone here monitor the solvency of IB and keep an eye on their share price? Arguably IB going under is one of the biggest risks...
In theory at least (and regulations vary by country) the securities held by IB are fairly safe, as is any margin held by futures clearing houses, which leaves only excess cash. In my case that's currently ~8% of my account value (perhaps less if netting across currencies is taken into account). That would be a pain, but it's not the end of the world (I lost more than that on Wednesday and Friday). As I deal with a UK regulated entity I'm fairly sure it would be covered by the FCFS compensation scheme (about 50K). The worst case scenario is all that my cash, including what is held for magin, would be at risk. Assuming I got 50k off the FCFS I'd currently lose about £95K. That would hurt, but it wouldn't mean doing anything drastic - like getting a job But of course it's worth keeping your ear to the ground. Institutions knew weeks in advance that MF global was in trouble, but we still didn't pull our final cash out of them until 2 days before they went chapter 11. And of course it's inefficient and dangerous to keep large amounts of excess cash in your brokerage account - I sweep mine every 6 months or so. GAT
Does that mean you've got 25% of your cash at IB and run it at volatility 100%, and just top it up if it gets low? I had thought about buying government bonds with the cash. As securities it should be a lot quicker and easier to get these back in the case of a failure. Getting cash back from IB, though it should be separated and safe (in principal)- could still take years if it failed.
No, my account is currently about 35% cash with the rest in stocks (I've explained why several times), of that 35% I usually need about 25% for margin. If I suffer large losses then I will end up borrowing against the stock to fund my margin. I could of course withdraw the cash and just keep 25% for margin plus a bit of cash, but I don't like the idea of having to quickly react to a margin call if things go badly wrong. Generally I think it's dangerous to have less than your notional capital in a brokerage account; so you have to top up when things go wrong. I like treating my account like a one way piggy bank; I take money out when it goes over HWM, but I never, ever, ever put money back in again. I think holding cash like securities rather than cash is probably sensible for the reason you've mentioned. You should then optimise your holdings so you are never hugely excess cash or massively borrowing cash for margin (since the latter will cost interest). GAT
We can also argue that, this system also retains some short gamma characteristic since it employs carry signals and shorts vol. futures.