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What is the optimal size of a bet? This is called "Kelly bet". Even before Black-Scholes came into existence, Edward O. Thorp, a billionaire mathematician, figu
by raincom 4y ago
What is the optimal size of a bet? This is called "Kelly bet". Even before Black-Scholes came into existence, Edward O. Thorp, a billionaire mathematician, figured out the innards of Black-Scholes strategy and made money for himself using Kelly strategy.
If you invest in some stock, and if that stock is moving in your favor, you should increase your bet or leverage more. If your bet is moving against you, cut down your bet size. That's what experienced traders do--just reduce your position by 50 percent; inexperienced/retail traders tend to increase their position, when things go against them.