How much I should buy UVXY (Volatility Stock)?
May 12, 2021
Let say our total lose would be 5% and UVXY raise 25%, x as total value, and y would be the value we are going to buy in order so we have the equation:
(x - y) * 0.95 = y * 1.25
=> 0.95x - 0.95y = 1.25y
=> 0.95x = 2.20y
=> y = 0.95/2.2 x
=> y = 0.43x
So it will be almost 50%, but if the volatility much higher, eg in 2018, we have volatility over 300% in total, but the total decrease only 50% which means you can just invest 15% on UVXY, then it will balance out.