Assume $1 million invested in a single stock.
What is the appropriate equation to assess the risk of a single day big move?
Let’s use an example of selling 25% of the stock before an earnings announcement ($1 million position becomes $750k at risk and $250k cash) versus letting it ride (ie, selling none, $1 million left in stock).
Assume a move after earnings of 10% in either direction.
Will the portfolio look like this between the two scenarios?
All in:
Stock moves up 10%= $1,100,000
Stock moves down 10%= $900k
After 25% de-risk:
Stock moves up 10%= $825k plus $250k cash= $1,075,000
Stock moves down 10%= $675k plus $250k cash= $925k
Assuming I’m in the ballpark with these numbers, it seems as if in order to actually “de-risk“ one would need to take 50% or more of her position off the table?
What is the appropriate equation to assess the risk of a single day big move?
Let’s use an example of selling 25% of the stock before an earnings announcement ($1 million position becomes $750k at risk and $250k cash) versus letting it ride (ie, selling none, $1 million left in stock).
Assume a move after earnings of 10% in either direction.
Will the portfolio look like this between the two scenarios?
All in:
Stock moves up 10%= $1,100,000
Stock moves down 10%= $900k
After 25% de-risk:
Stock moves up 10%= $825k plus $250k cash= $1,075,000
Stock moves down 10%= $675k plus $250k cash= $925k
Assuming I’m in the ballpark with these numbers, it seems as if in order to actually “de-risk“ one would need to take 50% or more of her position off the table?
Statistics: Posted by Basis — Thu May 16, 2024 12:19 pm — Replies 1 — Views 116