LD Lossdog Research
topic

Capital allocation

6 matching records.

Insight

Capital Allocation Strategy

The speaker suggests allocating capital into three main categories: trading (40%), growth capital (40%), and cash (20%). This approach emphasizes active trading as a core component of the portfolio, with growth capital being flexible and allowing for various strategies such as dividend portfolios. The rationale is to maintain liquidity and diversification while focusing on active trading strategies.

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Applicable when
  • active_trading_portfolio
  • diversified_portfolio
Limitations
  • The strategy assumes a certain level of market knowledge and risk tolerance, which may not be suitable for all investors.
Capital allocation
high confidenceVerify in video at 23:43 ↗
Q&A

What is the recommended percentage of capital to allocate for trading?

The recommended percentage of capital to allocate for trading varies depending on the account size and market conditions. Larger accounts typically use around 40%, while smaller accounts can use up to 70%. The speaker suggests that the percentage should be adjusted based on the VIX level and market volatility.

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Actionable takeawayAdjust the percentage of capital allocated for trading based on account size and market conditions.
Capital allocationrisk management
high confidenceVerify in video at 51:09 ↗
Q&A

How much of my trading capital should I allocate to short premium positions when the VIX is under 15?

The speaker suggests that for accounts under $50,000, a 40% allocation is acceptable when the VIX is under 15. However, for larger accounts, this level is considered too high. The speaker's current allocation is in the mid-20s, reflecting a low VIX environment.

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Actionable takeawayAdjust capital allocation based on VIX levels, with lower allocations for low VIX environments.
VIXCapital allocation
high confidenceVerify in video at 42:07 ↗
Q&A

How much capital should be kept on the sidelines when volumes are light and volatility is at the lower end of its range?

The speaker suggests reducing the capital allocation from 50-70% to 40-50% or even lower, emphasizing the need to maintain liquidity for opportunities when volatility increases. The rationale is that significant market moves and risks often occur when volatility is low, and being prepared with dry powder allows traders to capitalize on sudden changes.

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Actionable takeawayReduce capital allocation to the sidelines in low volatility environments to maintain liquidity for potential opportunities.
Capital allocationrisk management
high confidenceVerify in video at 37:56 ↗
Q&A

What are the best ways to allocate capital between defined and undefined risk in an active trader portfolio?

Defined risk trades should allocate 25 to 40% of capital, with per trade allocations ranging from 0.3% to 1.5% of available buying power. Undefined risk trades can use 3% to 10% of available buying power, with 3 to 7% being a common range. The allocation is not equal one-to-one due to differences in risk and potential gains.

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Actionable takeawayDefined risk trades should have a lower capital allocation compared to undefined risk trades due to their lower probability of profit and smaller potential gains.
Capital allocationtrading strategy
high confidenceVerify in video at 1:17:05 ↗
Q&A

Why would you use your buying power for stock trading?

The speaker mentions that they enjoy both buying and selling stocks, and they find it acceptable to use their buying power for stock trading despite its capital intensity. They also note that stock trading is commission-free and has tight markets, which are appealing aspects.

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Actionable takeawayStock trading can be a part of an active trader's capital allocation strategy if the trader enjoys both buying and selling stocks and finds the commission-free nature and tight markets appealing.
Capital allocationTrading Strategy
medium confidenceVerify in video at 1:21:55 ↗