LogFAQs > #943402764

Blur, I think the reality is with the hyper aggressive strategy you were using, this was inevitable. Whether it happened when you got to 60k or 100k or 500k or 1M, it would have happened eventually as long as you took on this kind of risk. I'll tell you though that I don't believe you would have stopped trading so aggressively if you had gotten your 100k. If you can turn 10k into 100k, you can turn 100k into 1 million right?

Let me repeat that I am not saying you should limit variance by closing out positions quickly (whether profitable or unprofitable). Jumping back and forth between cash and stocks doesn't make money unless you can actually time te market, which is incredibly hard. Limiting risk means choosing positions that don't have ridiculously high variance at the time you open them.

The thing you did that blew the variance into the stratosphere here was exchanging your shares for warrants. If the risk level of buying a stock is like driving to the store in your hometown, a deep OTM call option or warrant is like sailing a raft across the Pacific Ocean.

The mathematics of it is that with very high variance positions, one moderate drawdown will erase all previous gains, even if they are massive. It's tempting to think to yourself that a drawdown was severe, or exceptionally unlucky, but with the variance level you were using, what you ran into was a completely normal. In fact, it was more likely than not to happen! For a call option to decline by 50% is more likely than for it to increase by 50%. Why? Because the most it can go down is 100%, but it can go up thousands of percent. So the probability of going down has to be greater than up, or else everyone would buy the call option. And the price would rise until it was no longer an obvious bargain.

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September 1, 2003; November 4, 2007; September 2, 2013
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