Can VIX Make You Rich? Here’s the Minimum Amount You Need by Next Black Swan
Spoiler: YES, you can.
What do I mean by rich?
Being in the top 10%.
Why not the top 1% or 5%? Because it’s more achievable. The gap is so wide with the 1% or 5 % that you’ll feel there’s no point even trying.
What do I mean by rich?
Being in the top 10%.
Why not the top 1% or 5%? Because it’s more achievable. The gap is so wide with the 1% or 5 % that you’ll feel there’s no point even trying.
We can definitely achieve financial independence, especially since you're here for that very reason - to strive for it in a world where everything is worth less every day and where the bank account of a tech company like Apple generates more interest than a bank.
However, studies have shown that earning more than $100k a year doesn't proportionally increase our happiness.
Therefore, being in the top 10% of the population and following a 4-7% withdrawal rule while our money continues to compound can bring us closer to a life free of financial burdens.
Since I don't know your financial goals, let's assume the following for this calculation:
The VIX represents 5% of a $100k portfolio, which is $5k.
Let's assume we have contracts with a strike of 100 that expire in July.
According to the chart above, the price according to a Black-Scholes model of the market would be 0.12. However, let's confirm this with a broker or a website like Yahoo Finance.
According to Yahoo Finance, the price of the contract is indeed 0.12, so the calculation is correct.
Let's imagine that the VIX reaches 60 (as it did in 2008 and during COVID, it exceeded 80). In such an unfavorable scenario, it's logical for the implied volatility to multiply by 4-5. However, let's assume a very unfavorable scenario where it only multiplies by 2.5 (IV = 375%).
In this case, we would have gone from contracts worth 0.2 to contracts (shown in the next chart) worth 33.75.
What does this mean? It means that the $5k in our portfolio would have turned into $837k. Adding the initial portfolio value of $95k, we would be left with a total of $932.5k.
Now let’s see if you could be considered rich after this black swan event.
For each country, we’ll add the expected net worth that gives you the title of “rich” (the top 10%). I’ll stick to this website to determine the amount of wealth in dollar terms for each country.
In the United States, being wealthy means having a net worth of $2.2 million on average. However, being in the top 10% requires a net worth of $602,100 on average. As we just saw with the previous example, we would be well above the top 10% of the population in the world's leading superpower.
European countries also have varying net worth requirements for the top 10%. In the United Kingdom, the threshold is $503,324 on average, while in Germany it is $342,951. In these countries, even with a much smaller black swan event (which could not even be considered a black swan), we could achieve incredible results.
Moving to Africa, South Africa has a top 10% net worth of $51,596, which can be achieved even easier. Ethiopia has the lowest top 10% net worth requirement at $16,653 (you would have achieved it even before starting investing. Think about that).
South American countries also have varying net worth requirements for the top 10%. In Chile, the threshold is $90,632 on average. Brazil and Argentina have similar requirements, with a net worth of $62k and $50.1k, respectively.
Finally, in Asia, Japan has the highest top 10% net worth requirement at $386,000 on average.
Overall, Ethereum can be a valuable tool in building wealth and reaching financial goals. However, it's important to remember that investing always carries risks and you should only invest what you can afford to lose. Additionally, it's crucial to self-store your crypto or at least keep it in a secure wallet to ensure your hard-earned ETH is never out of your reach.
To conclude, having a portfolio exposed to improbable events is a must. The main problem for humans does not come from what they know, but from what they don't know they don't know. Now let's look at a bigger black swan, for example, Covid or 2008.
In this case, we would have converted the contracts worth 0.2 into 68. This would mean that our portfolio would have increased from the initial $100k to $1.795M. This would place us very close to being considered wealthy in the world's leading power (US).
So what are you waiting for to have an asymmetric portfolio?
Let's take a look at ours: