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I am a stock trader of many years but have only read about futures. I
have learned to manage risk under all “stock” market conditions except
for a quick catastrophic loss such as would result from a terrorist
nuclear attack. A situation like that may force the market to close for
several days and once it opened again it could be significantly below
any stops placed.
I have backtested option techniques for long side risks suggested by
option gurus and determined that the cumulated cost of options for
downside protection over several years could be as great or greater than
a single catastrophic loss. Therefore, I am not interested in protection
with options. My attention has turned to VIX futures because they seem
to spike the opposite direction as stocks during very volatile periods.
With the aforementioned in mind, I wonder if the futures traders on this
list can give me some advice.
I would like to determine how many contracts to buy, what cash to have
in reserve to eliminate margin calls based upon “X” number of dollars
invested in stocks. I am assuming that I should buy the VIX futures when
volatility is low as it is now and hold as long as I am timing the
market for my long positions. IOW, I would not be selling the VIX when I
sell stocks. I am assuming that if I buy when volatility is low (like at
an annual low) and hold as long as I am timing stocks, my risk for
additional capital required for margin calls will be minimized. I would
hold the VIX until some day when volatility is high and I no longer want
to use the VIX for protection for future stock positions.
I would like to see a thread based upon the VIX futures for protection
against catastrophic loss. Discussion on how many contracts and how much
cash reserve for “X” dollars of long stock would be appreciated. In
addition, is my assumption that I should by near an annual low
volatility and hold as long as I time stock correct? As my capital
increases or decreases what mathmatics should be used to determine the
number of VIX contracts for protection. IOW, if each share of stock has
“Y” volatility and I buy “X” shares how many contracts would I buy and
how much money should I have for margin protection in that futures account?
Russ
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