A.I.M. Users Bulletin Board

[ls7550]

Hi Tim.

There are a few such similar mathematical cases - trading the VIX, buying/selling long/short doubles pairs, trading the V/L arithmetic. In each trading costs are the killer, turning the mathematical positive bias into a negative net benefit.

In the case of V/L arithmetic, you'd have to constantly rebalance each and every holding and is not therefore viable. What it does highlight however is the potential gross benefit of using constant risk/rebalance.

To clarify the Ladder trades - which are similar to AIM trades - add around 1.5% p.a. net additional benefit statement in my previous post, typically Ladder/AIM will add around 0.5% trading benefit (rebalance benefit/constant risk benefit - whatever you prefer to call it) against allocated funds.

By applying Ladder to only a third of funds, but allocating the whole of funds to that and only trading the central third region, has the effect of scaling up trade sizes three-fold. Which in some respects is very similar to that of using LD-AIM with 1/3rd real stock, 2/3rd virtual stock. In turn the constant risk type benefit increases from 0.5% to 1.5%

So stop rolling around laughing on the floor and get to work building up your AIM equity warehouse :)

Best. Clive.