The Law of Active Management states that IR = IV * sqrt(n) IV is your “edge” or conviction and n is the number of independent trades you make. So the lower your

The Law of Active Management states that IR = IV * sqrt(n) IV is your “edge” or conviction and n is the number of independent trades you make. So the lower your IV (closer to 50%) the more trades you need to put on. So there are two ways to make money being an active manager: have a low IV with a high N or have a high IV with a low N. It’s difficult to maximize both at the same time because you won’t be able to find enough trades with a high IV, so you need to keep lowering it (the lowest you can go is obvioisly >50%) to get more trades. This is why quant funds have so many positions, because they aren’t very certain about their bets. Buffet takes the opposite approach, only putting on a couple massive trades that he thinks have a high IV.