Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Minyan Mailbag - Confidence Intervals



Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.

Hey John,

Just saw
your piece on being long volatility and thought your last sentence in paragraph 1 is very important. It would take a tremendous sample size (Large portfolio) to get a high confidence interval (Return) for extreme tail events.

An example of this is when the lottery pays over 16 million in the state of Washington. Yes, you have an edge because there are only 15.8 million possible combos of numbers, but you would have to bet a HUGE number of combos to be highly confident that you would win the 16 million, thereby hitting the tail event.

Do you think 200 positions is enough to realize the expected gain from being long volatility? Is the expected edge (AKA being long volatility at these levels) that great that a fewer number of positions will probably (High confidence interval) generate an absolute positive return?

Minyan Mark


We have found that selecting 200-250 names with cursory analysis (primarily balance sheet analysis) combined with relative cheapness of vega provides this payoff. If vega were higher, we would need a greater number of names, but the greater number of names at a higher vega worsens the payoff because the barrier for day to day volatility capture would be higher.

Prof. Succo

< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos