Important Issues Associated With The Hold Duration

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Executive Summary

The hold duration is how long an IV is held.
We cover important issues related to the holding duration.

Introduction

Employing an effective hold duration strategy means understanding issues related to holding duration. This article is based on our research into the duration of increase, stability, and decrease for a number of IVs. That is where we obtain the numbers you see quoted in this article.

*Note

This article is only part of our internal analysis of investing and communicates with people we know. We are not writing this to attract investors, and we are not giving investment advice. This is just a convenient way to document our analysis, which can be easily shared and easily updated.

Issue #1: Implications of Mature Rallies

The longer a rally continues, the higher likelihood that the IV becomes too rich for other investors and begins to look overvalued.

One can’t always control when one comes upon a rally. One can perform IV screening and come upon a rally at any stage of maturity. This means that some will be in their immature stage, and desirable, some at middle age, and some of them at an older age.

Issue #2: The Time Required to Observe the Rally’s Beginning

All of the previous broaches a related topics. Which is that it takes some time to observe a rising trend in an IV. Therefore, normally it would take three days to identify a rally.

Our Rule Related to Timing of Buying and IV

We need to see three days of increase in a row to begin to consider an IV. This can be found through IV screening.

Issue #3: The Time Required to Observe the Rally’s End

Furthermore, in addition to getting into an IV with a purchase, one must get out by performing a sale. However, it also takes time for the IV to depreciate before it is clear the rally is over. This means taking some losses in some circumstances. This loss must be counterbalanced against the potential gain. There is no way around the fact that one must take some losses to finally determine if the rally is over.

Our Rule For When to Sell an IV

The rule we have concluded by looking at the number of IVs is a 10% or greater decline from the most recent high.