I don't know if this is a completely original idea. It probably isn't. But I was learning a bit about how volatility indexes work. Specifically, an index like uvxy.
A lot of these volatility indexes reduce in value significantly over the course of time. Sometimes even losing about 90% value over the course of a given year.
I was trying to think about ways that I could take advantage of this and remembered about something called the Martingale betting strategy, which basically involves doubling your bets every time you lose. The idea behind this betting strategy is that you eventually always win, but it requires essentially an infinite pool of money because it's not realistically possible to double your bet multiple times.
Well, this becomes realistically feasible with volatility indexes.
The idea that I had involves purchasing a specific dollar amount's worth of volatility index shares and continuing to purchase that same set amount of money's worth of shares every time the volatility index reduces in value by 50%.
For example, buy $1000 worth of shares of uvxy at $10 per share = 100 shares. Then spend $1000 again at $5 per share = 200 shares, and so on and so forth. This essentially would lead to somebody having thousands and thousands of volatility index shares for paying a sort of "flat fee" every few months. Even with reverse splitting being a thing that exists, it would still seemingly be beneficial to do this if feasible for you.
This essentially makes it so that you don't need to have an infinite amount to money to realistically implement the Martingale betting strategy because you can buy double the amount of shares instead of doubling the amount of money that you spend.
Essentially, this means that if the market ever crashes, you will make a significant amount of money.
So far, I am only able to see two downsides to this:
1) you continue to bleed money in the long run until the stock market crashes which is the only time you would ever make money.
2) said strategy relies on the assumption that the stock Market will crash, which we all know will inevitably be true, but such a mindset is unhealthy for capitalism and the overall economy.
One potential benefit I see if this type of strategy catches on though is that, if retail investors utilize this strategy em masse, it would theoretically scare large whales and billionaire investors in the market to into stopping the stock market from crashing periodically every few years for fear of losing their investments. Ironically, this seems like it would result in more market stability as more retail investors catch on and use this type of strategy.
My questions to you all are:
1)am I insane? Or does something like this actually make sense?
2) what are other downsides to this?
I'm genuinely interested in learning more about stuff like this and the logic behind it so any feedback would be much appreciated.
Submitted April 22, 2023 at 12:30AM by AAbattery444 https://ift.tt/VqLkjI8
