Read on Twitter
2) When this goes in reverse, you get into trouble (fast). A 20% decline at 130% long, sends you into the danger zone for leverage - hence why you are forced to de-gross and sell shares at cheaper prices as they go against you. The death spiral...
3) We have all experienced each of these scenarios to varying degrees while charting risk exposures. It’s a part of finance that’s almost second nature to those of us focused on our risk...
4) I’m trying to run de-grossed with a targeted 25% cash level, but as my longs appreciate rapidly ( $JOE and $GBTC are roughly half of my book), the cash percentage keeps declining, despite continued sales of pretty much everything else I own.
5) The more these two go up, the harder it is to keep my targeted cash level. Mathematically, this makes sense, but having never targeted a set level of de-grossing, I had not experienced this phenomenon before...
6) I came in from the beach, checked my sheets, saw all my longs ripping and wondered “why the hell is my exposure increasing if everything is going up??” That’s not how it works when you’re all grossed up. Under the fulcrum at 100% exposure, different math applies...
7) 20 years in and every day remains fascinating...
