Rethinking Risk Management: Avoid Surprise, Not Risk

Published on
June 29th, 2020
Duration
51 minutes


Rethinking Risk Management: Avoid Surprise, Not Risk

The Interview ·
Featuring Brett Friedman and Michael B. Miller

Published on: June 29th, 2020 • Duration: 51 minutes

With recent market moves like the VIX spiking from 15 to 80 in a matter of weeks or oil futures trading at preposterous negative levels, taking even the most experienced professionals by surprise, many individuals and firms lucky enough to have avoided total collapse are rethinking their approach to risk management. In this interview, risk management consultants Brett Friedman of Winhall Risk Analytics and Michael Miller of Northstar Risk reexamine the recent carnage, with a particular focus on how variance swaps got a handful of sophisticated investors with well-established risk management practices in a world of trouble. Together they discuss why systematic vol selling has become the flavor of the day, debate whether these complex products are suitable for pension funds regardless of their sophistication, and put forward the idea that unbiased post-mortem trade analysis is as important for winning trades as it is for losing ones. Filmed on June 23, 2020.

Comments

Transcript

  • AH
    Attila H.
    8 July 2020 @ 17:00
    Fantastic piece, thanks
  • MT
    Mike T.
    30 June 2020 @ 14:18
    I have no real issue with the content here, but found this piece disappointing, not because of what they have to say, but rather what they didn't say and what was left out, therefore I would suggest this was yet another unbalanced view point of trading short Options/ short Volatility, focusing on the risks only with no mentioned of the opportunities. I sometimes wonder if RV have their own compliance issues with the type of speaker, type of strategies they're able to discuss & present on this platform? Short premium, short volatility discussions have been conspicuous by their absence on RV since I became a sub 5 years ago. Taken direct from the transcript " ….you're going to have this pattern of, I make money, I make money, I make money, I make money and then I have a huge loss…" "… it wipes out a lot of your gains.." At this point I now start to disagree. Certainly upon a violent move higher in Volatility, the short volatility option trader will look at his P&L and see losses, in my own case back in Feb/March those losses were sufficiently high to "get the heart pumping" however when talking of losses there are TWO types of loss. 1./ marked loss with an open position 2./ realized loss upon closing a position. We need to consider if there any particular option strategies that are easier to keep open for longer, making it easier to avoid a panic reaction thereby increasing the chances of waiting until the storm passes. Fully appreciating volatility contracts to the mean over time is the fundamental basis upon which short premium, short volatility strategies are built and hence work really well over time. The commentary by Brett & Michael strongly implies the short vol option trader is left entirely defensive, he loses big and that's it! No, not always! When one sees large 'Marked' losses it is NOT a fore gone conclusion that existing short premium, short vol option positions will for certain lead to an eventual 'huge' realized loss. It interesting to note defined risk option positions have the potential to move to max loss much quicker than undefined naked risk positions. To anybody not educated on the value of short premium, short volatility options 'undefined' risk strategies have a multitude of different methods and strategies to defend and adjust, risk (vega) reduction mechanics, directional exposure reduction mechanics all providing viable opportunities to keep 'marked loss' positions open for a period of time until the impact of VIX at 80 passes. There are great many more defensive moves available with undefined risk over defined risk. With defined risk positions, e.g. directional spreads, Condors etc when an outlier move occurs defined risk pretty much go to max loss instantly and the only choice then is to wait it out until expiry, you might get lucky. With undefined risk, it's a lot different, roll puts up, roll calls down, roll out in time, re-centre strikes etc, all is possible as long as the cumulative $ value of the Credits received total up to more than the Market price to close out the position, all the while one can collect additional $$ credits the undefined risk position can be left open so avoiding panic and a realized loss. As a minimum if not able to close out for a profit with the aforementioned, a significant reduction in the size of eventual realized loss over the initial 'scary' marked loss is very much attainable. You need to have sufficient Capital to weather the storm, AND most importantly the value of the underlying stock should not be so high that one is constantly worrying about the risk of being assigned stock you can't afford. Keep size small should be a constant mantra. The above all said, irrespective of what markets, what strategies and methodologies one uses to participate in markets, whatever is your personal preference the ONLY viable $$$ cost effective strategy to protect against large realized losses is SIZE. Keeping position size small is imperative. All the bad news stories in circulation always come down to size, people get too big. I also always ensure my Portfolio is set up directionally short (short delta) which is a drag on P&L performance but does offer a level of protection when the VIX shoots dramatically higher, it certainly provides a window of time to 'control the heart beat' then move onto making best use of a variety of adjustment techniques available. Portfolio risk management, the understanding of risk in mathematical, statistical, % probability terms is a skill that can be learnt by anyone willing to put in the time e.g. a simple example of risk management, at any one moment knowing IN REAL TIME what is a portfolios directional exposure expressed by Beta Weighted metric against the S&P we know if the S&P moves by +/- % then a portfolio P&L will move by +/- $$$$. Lastly, while this piece is about risk of outlier moves, movement in the VIX on a constant basis necessitates those with short premium positions to be always aware of the below listed metrics in their portfolio so at to be best placed to respond when necessary as follows: 1./ How much $$ EXTRINSIC value in the Portfolio, and is that level appropriate for size of Capital within an individual's account? 2./ Is the $$$ value of +'ve Theta (another representation of risk) appropriate for the size of Capital available in an account. 3./ Is the ratio of directional portfolio exposure (I prefer negative Delta) verses +'ve $$ Theta appropriate for amount of spare/unused Capital available. 4./ Is the ratio of portfolio Delta:Vega appropriate for Capital held. 5./ Lastly and most important, a short premium, short volatility option positions, are most exposed to risk as Expiry date approaches e.g. in particular Gamma Risk. A simple way to take this risk off the table: either close or roll out in time at approx 3 weeks prior to expiry, 3 weeks prior to DTE.
    • MT
      Mike T.
      30 June 2020 @ 15:27
      Typo..... should have said the short volatility trader is left entirely defenceless.... he losses big and that's it. No, not always.....
    • DS
      David S.
      30 June 2020 @ 16:43
      Thanks for an in depth comment. RVTV should develop several presentations around your comments. It would be nice to understand this difficult area better even though I will not use it. Why not? DLS
    • MT
      Mike T.
      30 June 2020 @ 19:26
      David, I would be surprised, maybe even very surprised if RV were to devote time to a series of presentations on short premium, short volatility option trading. Something worthwhile as an intro would need maybe a week of daily one hour long sessions. I also wonder if maybe RV might think there's a conflict of interest e.g. on this platform Chartists/Technical Analysts are featured regularly, where as short premium option traders, at least the ones I know, do not use Charts or TA at all. Also RV is in the business of educating people to understand the markets often presenting ideas from 'expert' personalities with strong opinions. Expert opinions can still be listened to if preferred and TA can also continued to be used BUT are NOT prerequisites for trade ** entry** if selling option premium. The information one needs can be boiled down to the ability to have confidence in the mathmatical probabilities of success the option seller has over the option buyer, also how to quickly recognise when options prices per any one specific underlying are elevated on an historcial basis, plus knowing how to recognise optimal liqidity conditions e.g. SPY is highly liquid, IVOL is extremely illiquid. If one limits one self to only trading underlyings with with optimal liquid options the short premium option trader has a choice to be totally agostic if they want to be on the underlying and indifferent at least at position entry to directional movement . Trade entry is easy, trade management to optimise win rate is also relatively easy to learn. However trade management when things start to go wrong is NOT easy, all in all takes approx 2 years of effort to achieve an 'average' level of competence.
    • DS
      David S.
      1 July 2020 @ 02:31
      Mike T. Thanks for your comment again. I was not looking for competency at my age, just a little better understanding of what is going on in the evolution of portfolio risk. I cannot calculate Schrodinger equations anymore, but I know what he was up to. If it is too difficult to discuss in general, then it was only a suggestion. DLS
  • TB
    Tobin B.
    30 June 2020 @ 21:47
    Yeah this was a good talk Max. I am a retail trader and I got something out of it; I know very little about the hedge fund world.
  • DS
    David S.
    30 June 2020 @ 17:17
    Mr. Wiethe: You made a correct decision to include this presentation on RVTV. Risk, correlation, and sizing are especially important area in understanding the derivative markets. IMO initial opposition shows we need more emphasis on risk management not less. This can be done within interviews and more directed interviews. In time, more subscribers will understand how important this presentation was for all of us. Knowing what we do not know is wisdom. DLS
  • SM
    Shantanu M.
    30 June 2020 @ 05:39
    I read through the transcripts thrice but I still cannot find much value in this video. For me the problem is not the subject, i am definitely interested in how institutions manage risk but these guys kept talking about how institutions "dont" manage risk. Also, in general since this remote stuff has begun it seems to me people come up with much lesser charts/slides/data for these talks/discussions. Last year people like Milton Berg, Kyle Bass brought a lot of real data/charts to their videos which is interesting and informative. On the other hand people like Druckenmiller, Ollari and Russell Clark brought details from their vast experience to the table and again that kept me interested. This definitely felt like a waste of time even though i only read the transcripts.
  • CR
    Cory R.
    30 June 2020 @ 04:09
    These are the kinds of guy whose firm goes bust and they spend a year trying to hash out what exactly happened. Typical square head thinkers: they went through financial post-secondary to get their "risk manager" designation-meal-ticket. The smarter of them get their own firm going to provide "risk management" services to the umpteen million financial services companies who only exist because Wall St. dictates terms to the White House not the other way around. Re-institute Glass-Steagall and these guys become bank managers and this conversation is about the vagaries of merchant banking vs retail.
  • MC
    Mario C.
    30 June 2020 @ 04:08
    Overall, a very good honest video: thumbs up. They know what they are talking about and give a very realistic picture about things happen. People at AIMCO were definitely not as they are currently protreyed in the media. nb: risk consultancy is not the panacea. Ask Hartford, ING, SwissRe, and co. who took bil. USD losses in 2008 on Variable Annuities incorrect modeling/hedging, though they had external risk consultants (not going to name them) that designed or validated their risk management, but with no skin in the game.
  • Md
    Matthew d.
    29 June 2020 @ 22:08
    Guys I’m sorry but seriously if the topic is too complicated or “esoteric” for you then just skip on to the next video. RV provides so much incredible content of all different types and levels you should be able to find something for you regardless. Don’t be so arrogant as to expect Real Vision to spoon feed you exactly the type and “level” of content specifically tailored for you - push yourself every now and then to try and learn something. If you’re too tired / lazy / uninterested then just move along - I mean come on these guys really are doing a great job, stop being so entitled!
    • PW
      Pratik W.
      30 June 2020 @ 00:40
      Couldn't have said it better.
    • CR
      Cory R.
      30 June 2020 @ 04:02
      I also am sorry, but your response is illogical. The guy who complained had to sit through the video hoping somewhere would be something he could learn. Only at the end did he realize he learned nothing, so he commented so. His comments are valuable as they provide RV management a view to what people find of use or not. Cheers.
  • MC
    Mario C.
    30 June 2020 @ 03:40
    "The Head of the Risk Management should not report to the Head of Trading"... . Pre 2008, at "Investment Bank X", the Head of Risk Management bonus was indexed on the PnL of the trading desk. Guess what happened... (and I am sure it was quite common a situation at the time... ). Post 2008, pendulum effect, it's the other way around. In a lot of -not well managed- sell side places, Risk Management is so powerful it will prevent any business without consideration for the risk associated.
  • MC
    Mario C.
    30 June 2020 @ 03:33
    Going through the middle of the video. It's good, but some points made seem incorrect: capped varswaps. Capped varswaps are not the natural product. They first appeared and traded much later after varswaps were already a commoditized product. Actually capped varswaps are not a natural product. They indeed started to appear more and more post GFC 2008: often interdealder market now trade varswaps with a cap strike at 2.5x fair strike (so for a usual market regime varswap strike ~20%, this gives a cap strike at 50%). This wasn't the case before. Anyway, there was no market capped vs uncapped varswaps, until low yield environment started to push some buyside (hello Canadian Pension funds) to agressively take tail risk and capped vs uncapped varswaps in quest for yield.
  • AA
    Aymman A.
    29 June 2020 @ 23:41
    I always want to learn. Nothing is too esoteric for me. My complaint is that I learned nothing. They had a nice discussion. Smart, both of them. But I learned nothing. For example they could have talked about esoteric volatility signals for the general market. They did nothing of that sort. So thumbs down.
  • ND
    Nitul D.
    29 June 2020 @ 12:27
    Without heeding to deteriorating fundamentals start of 2020 (and some would even say started back in late 2018 and through 2019), and grossly underestimating the coronavirus reaching the shores of US, a pullback was inevitable in the US markets. Look, am no PhD or a smart hedge fund manager (i am just a retail guy sitting in a remote village in a poor part of Asia), but how could these "smart guys" from the Street, did not see it back in Feb 2020? Sure there are lots of events that could be black swan - like a war in South China sea for e.g. - but these guys get paid to manage those risks, right? (billions of dollars in AUM fees, profits)
    • LS
      Lemony S.
      29 June 2020 @ 23:24
      The saddest part is that if not for the obsessive central planners and overlords covid would be exactly what it still is, without the collateral damage killing the mid to small business and millions of people who were trying to live and work normally. No, physical distancing and masks don't do anything. If you don't think many parts of this response were planned (notice, all I'm saying is the response, one doesn't even have to venture further), just wait and see what the US becomes in short order.
  • MW
    Max W. | Real Vision
    29 June 2020 @ 16:51
    I believe on of the main reasons guests come on RV and other financial media in general is to reach other pros. Many of those people the guests are trying to reach really enjoy these types of interviews. So, this interview and esoteric interviews like keeps around the viewers that the contributors actually want to reach. The CNBCs of the world make up for it with total eyeballs but we go a completely different route. When I go and book people what gets them to say yes to a small paywalled platform is the professional finance subsection of the audience that we have cultivated over years of delivering this type of content. It is a delicate balance to try and serve both audiences but each side benefits form the other. Without the scale of retail, the business would fail and the pros would get nothing. Without the pros, no one would care about reaching a handful of retail investors and booking great guests would be difficult. I think of it like a complex ecosystem where removing one link in the food chain can have devastating unexpected effects.
    • AP
      ANTHONY P.
      29 June 2020 @ 21:06
      @Max W. : What?
    • MW
      Max W. | Real Vision
      29 June 2020 @ 21:38
      @Anthony if the following restatement doesn't help, more context on your confusion is needed. Unless you are just trying to be flippant. I felt that this piece was tailored more towards professional investors and I'm ok with that. As a non-professional investor myself and former subscriber this was always my favorite type of content as I am in the learning stages of my investing life cycle with aspirations to break in to the professional finance sphere. Now having worked here I have also seen the importance it plays from a business perspective. Often, people who don't like content because it is too high brow ask us not to produce pieces that are as esoteric. I think they are missing the fact that the reason that all of our contributors come on is to reach the small cohort of actual money mangers who subscribe. People do financial media for a bunch of different reasons but I break it down like this... 8% altruism or to educate the general public and help the every man investor 2% to move markets ie. Bill Ackman and the "Ackman Bottom" 90% to reach other pros to further their careers through indirect networking, sell subscriptions/research, and to reach allocators To a pension fund rethinking risk management, this piece alone might be worth the price of admission and thus keep them subscribed. That pension fund manager is who your favorite contributor wants to reach. Chris Cole wants to reach allocators not guys with $200,000 brokerage accounts who want to learn how to put the dragon portfolio into their Schwab Account. If we didn't have those big fish swimming around in the pond that is RV we wouldn't book the top level guys everyone wants to hear from. So I'm saying that there is a balance that we need to achieve by sometimes speaking to the big fish directly. I argued above that CNBC doesn't have the same problem because they have an unlimited number of eyeballs and are on in the lobby over the head of every hedge fund front desk in America so they don't have the same problem of convincing people of the value of appearing on their platform.
    • MC
      Mario C.
      29 June 2020 @ 22:49
      8% altruism 2% talking their books 90% selling subs/research Not sure about the weights. But very pleased to read that Realvision admits this as a fact: most videos on the platform are about someone selling something. There is a lot of information noise (the 2%+90%) to go through to enjoy the real information value (the 8%). That's what makes it quite frustrating at times, and once in a while really informative and enjoyable
    • MW
      Max W. | Real Vision
      29 June 2020 @ 22:54
      @Mario. I was focused more on the motivation than the result. Someone can come on with entirely self serving motives and still provide tons of insight. They aren’t mutually exclusive.
    • MC
      Mario C.
      29 June 2020 @ 22:59
      that's also why I would enjoy less video (less of the 2%+90%) for a better quality mix (larger weight of 8% videos). Realvision was best around 2015-2017 when it was producing less content, ~2-3 videos/week (only one long format). Realvision always presented itself as the smart financial media, anti-CNBC. But Realvision has partly switched from the long-term or deep thinking that made it special, and more to the daily news headlines category (cf. the daily updates videos). (i) Nobody has time to watch more in a week. (ii) And there isn't the capacity to get more of quality content than once a week, which would already be extraordinary
    • MC
      Mario C.
      29 June 2020 @ 23:09
      @Max W. "I was focused more on the motivation than the result. Someone can come on with entirely self serving motives and still provide tons of insight. They aren’t mutually exclusive." Indeed sometimes it's the case: eg. Logica Funds interviews, where WH/MG obviously trying to market their firm for asset gathering, while providing very interesting knowledge/quality insights. But that's far from being the rule... . I personally think RV should recalibrate to 2-3 vids max/week (1 long format, 1 medium format): it's more realistic if RV keeps at aiming to be the smart financial media
  • BC
    Bryan C.
    29 June 2020 @ 14:53
    So RealVision has two subscription levels - basic and advanced. It would make sense that basic level investors are interested in basic topics and advanced subscribers are interested in more advanced topics. This interview on risk management at the hedge fund level is a bit esoteric for basic level investors. Several of your recent topics have been similarly esoteric. Please provide more basic topics in this subscription level and leave the more advanced topics for the higher priced subscription.
    • ND
      Nitul D.
      29 June 2020 @ 15:26
      I don't think its related to basic vs. advanced. In my view, most subscribers are interested in specific topics (like view on USD, copper, treasury yields, equities etc.), they get interested in videos which address specific targeted topics (may be RV folks can do some background analytics on this and verify) because some or many of the viewers may have personal skin in the game investing in etfs/options etc. Just my 2 cents.
    • MW
      Max W. | Real Vision
      29 June 2020 @ 16:48
      I'd like to preface my comment by saying this is a generalization and a personal observation. I mean this in the most matter of fact way that I can and do not want to downplay the sophistication of anyone at any level of RV or retail investors in general as I have met plenty of highly sophisticated "retail" investors. Ironically, I personally have found that the higher up the tier structure you go generally the more "retail" you are. Many of our most sophisticated subscribers who are buy-side pros and have been with us for the longest period of time know how to watch the essential level content and draw out insights that help them more over the long run than any "trade idea" or recommendation from Raoul or Julian would at the Pro level. I believe on of the main reasons guests come on RV and other financial media in general is to reach other pros. Many of those people the guests are trying to reach really enjoy these types of interviews. So, this interview and esoteric interviews like keeps around the viewers that the contributors actually want to reach. The CNBCs of the world make up for it with total eyeballs but we Goa completely different route. When I go and book people what gets them to say yes to a small paywalled platform is the professional finance subsection of the audience that we have cultivated over years of delivering this type of content. It is a delicate balance to try and serve both audiences but each side benefits form the other. Without the scale of retail, the business would fail and the pros would get nothing. Without the pros, no one would care about reaching a handful of retail investors and booking great guests would be difficult. I think of it like a complex ecosystem where removing one link in the food chain can have devastating unexpected effects.
    • ND
      Nitul D.
      29 June 2020 @ 17:26
      Thats a beautiful comment, Max. On the linkage between "retail" and "pros". I really get the balance you are talking about. As I said, no complaints from my side :) I try to post comments as much as possible on the videos and try to read other comments and introspect on the discussion.
    • JN
      John N.
      29 June 2020 @ 22:33
      nothing wrong with getting to know different angles to some degree. I had never heard the term variance swap before and have been trading a long time. plus there are important pieces of advice or information. like when they talked about only thinking about risk adjusted returns. this is just as or more important for retail traders because it is the only way of thinking that works.
  • DS
    David S.
    29 June 2020 @ 18:42
    Excellent discussion. I learned a lot. This is the deepest end of the pool. The most important lesson for me is not to dive in. If you did not know this, then this discussion will help you understand why. Do I really need to know how to put on a reverse iron albatross spread? No. If I were on the board of a pension, however, I would like an outside “intelligence officer” to tell me if we are and/or should be using it. It is embarrassing that RVTV even needs to explain why this interview is important. This would be a great presentation to give to any pension board, so they know what the risks can be. They cannot fulfil their responsibilities by just trusting in-house teams. RVTV provides many videos. Please to not dummy down all of them to my level. Thanks. DLS
    • DS
      David S.
      29 June 2020 @ 22:01
      Sorry. ...do not dummy down ...DLS
  • MW
    Max W. | Real Vision
    29 June 2020 @ 13:39
    Not too many comments and mixed reviews in terms of 👍/👎. I booked Brett and Michael and I'm interested in any feedback or questions you have. Consider this thread an Ask Me Anything (about this piece).
    • ND
      Nitul D.
      29 June 2020 @ 15:08
      I did like the interview, in many ways risk management is core to investing. This was a good interview. But was it insightful in a revolutionary way? May be not so much, some of the topics like volatility selling, search for yield pushing investors down the risk spectrum have already been covered by other guests and analysts like Mike Green for example. So yea, felt like some repetition, but no complaints as far as I am concerned, because the RealVision content is top-notch each one of the videos! Cheers.
    • ND
      Nitul D.
      29 June 2020 @ 15:17
      In fact a suggestion would be a discussion on cross-asset volatility, I don't think RV has covered cross asset vol - bonds (MOVE, Eurodollar curves), equities (VIX, vix futures), commodities vol, fx, (basis swap spreads, FX vol) credit (IG, HY CDX, Option adjusted spreads, Fed buying impact on vol). What are these indicators saying about the market now and out into the near term future? Are there divergences among cross asset vols? Are there risks investors are not paying attention to in the vol space? Will we see another big and suddent liquidation/credit event in late 2020/early 2021 (vol exploding like Mar 2020 taking everyone by surprise)?
    • ND
      Nitul D.
      29 June 2020 @ 16:11
      I was thinking about this interview how this could have been more engaging to the "retail" investor. Like what tools/indicators could the folks use to be on alert / upcoming heightened volatility and take some positions off the market or reduce their exposure for e.g. 1. When VIX9D/VIX ratio > 1 , means the cash VIX goes into backwardation or the VIX futures curve flattens or goes into backwardation, usually means that investors are seeking protection means heightened equity risk on SP500. One could use a simple charting tool (like TradingView) to monitor this ratio on a realtime basis 2. When MOVE inches higher > certail level (historic mean / median) then the treasury market is getting volatile, and folks need to get cautious now. 3. When FX basis spreads on USD/JPY, EUR/USD starts widening, there is demand for US dollars and bullish for USD, folks can seek opportunities to get long into relevant etfs. 4. Credit vol (OAS spreads) are declining but let's say 30 year treasury yields are moving lower or consolidating, usually means risk is still out there. Many more linkages can be established to give the folks some idea when to get defensive. That would make for more engaging discussion, i would assume :)
    • MW
      Max W. | Real Vision
      29 June 2020 @ 16:50
      Thanks Nitul, I agree cross asset vol is needed. Perhaps it is time to bring back the convexity maven himself. Harley Bassman, inventor of the MOVE Index (The VIX's treasury cousin).
    • RM
      Richard M.
      29 June 2020 @ 16:59
      Max, I think most RV's are over at the Crypto convention - give it time and I think you'll get more responses to this video!
    • ND
      Nitul D.
      29 June 2020 @ 17:10
      I did listen to the recent interview of Harley Bassman (yep, the Convexity Maven) on MacroVoices (shout out to Erik Townsend, one of the best, if not the best, free podcasts out there!). May be someone who has an overall understanding of the volatility space to interview him, people would be interested to listen to Fed suppressing credit / bond volatility but then volatility never goes away, its just manifests in other asset classes (like FX). A beautiful cross asset-vol-linkage map would be great to - pros and retail both.
    • TB
      Tobin B.
      29 June 2020 @ 21:10
      I like that you asked for feedback, Max.
    • MW
      Max W. | Real Vision
      29 June 2020 @ 21:18
      Thanks Tobin. I'm always looking to improve our offerings and understand the desires of our audience.
  • TP
    Timothy P.
    29 June 2020 @ 16:41
    My favorite part "They had good risk management." Thanks for the laugh, RV.
  • RN
    Richard N.
    29 June 2020 @ 15:43
    I really enjoy the risk management discussions. I would love to see a conversation on how retail investors with the limited products available to them could implement better risk management processes, including what Nitul said about cross-asset volatility. I believe most retail investors don't understand the mix that they actually carry and they separate their portfolio outlook to only what they have in their trading account. That is one thing RV has taught me as a retail investor to do over the years and it has really helped my returns and risk management.