Comment by User23
2 months ago
A 3k bankroll isn’t remotely close to enough working capital to employ any kind of useful risk management strategy and get any kind of return worth the bother.
2 months ago
A 3k bankroll isn’t remotely close to enough working capital to employ any kind of useful risk management strategy and get any kind of return worth the bother.
Right but if you are wrong you are only out 3k. Many people with more money think they have a good strategy and lose a lot before they realize it wasn't bad luck and risk management but a bad idea.
Well it's true, you do need an idea. But good ideas aren't hard to come by when you understand basic risk management. Take for example recent events. Say your idea is if this election goes one way, it's neutral/slightly bearish for TSLA, if it goes the other way it's wildly bullish for TSLA. Since one possibility isn't going to result in much movement you ignore it. For the other one you structure some options trades to go long where gamma will runaway in your favor. Assuming polls are to be believed, you have a roughly 40% chance of that bet paying off, and you can structure it to pay off a heck of a lot better than 150%. And if you're wrong? Well them's the breaks, but your risk management strategy means you're still in the game to give it a shot at the next good idea. And even then you won't lose your whole bet unless you picked an extremely aggressive expiry.
This is, incidentally, basically how VC works too.
You also need an idea that's somehow different from the rest of the market. (It's the difference of opinion/point of view that makes a market.)
If everyone has the exact same expectations as you, no one is going to offer you the options trade structure at a price that would be profitable for you.
4 replies →
Eh, I started with not much more than that (£5k) about ten years ago, and now have an eight figure equities portfolio, built entirely from that seed capital.
All buy & hold forever, layered sell-off, buy the next thing, take some profit for me and the taxman. Enough moved into stable instruments (bonds, real estate) that I can afford to lose the whole shebang.
So yeah, $3k is plenty, if you buy inevitable winners. Just… look at the broad sweep of the future and buy supply chains. Shovels in a gold rush and all that.