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Most traders think being bullish means loading up on bullish positions. I’m here to tell you that’s exactly how you get crushed when volatility explodes. The reality is that even when everything looks stable, markets can flip instantly, leaving traders exposed in ways they never planned for.
I’ve been running a portfolio construction strategy that sounds counterintuitive at first — holding opposing positions even when I have a clear directional bias. But this is exactly what protects the portfolio when volatility unexpectedly expands.
If the environment suddenly shifts, it’s not unusual to see a string of positions lose all at once while the opposing one becomes the sole winner. And that single win can be the anchor that prevents the entire structure from collapsing.
Why Neutral Strategies Need Directional Insurance
When I discuss Morning Payout Plan allocation, there’s a specific reason we studied it at one-third of the portfolio. In normal, easy trending environments with a low VIX, neutral trades perform well with high win rates. The same goes for bullish trades in healthy uptrends.
But markets don’t stay normal forever.
When you’re in a normal volatility environment and suddenly get taken out of it, your portfolio faces an immediate test. For neutral strategies, expanded volatility is the worst possible scenario. Directional trades, however, often benefit from the same volatility expansion.
This is why I always want an opposing position on — a deliberate balance that allows the portfolio to absorb shocks instead of magnifying them.
The Math That Makes It Work
When directional trades get stopped out completely, you might lose $250 each across multiple positions, totaling $2,750 in losses. But the opposing position — the one that looked like insurance — behaves differently during volatility spikes. What’s interesting is that the win becomes an outsized gain. It’s not your normal size, so it can make up a big chunk of losses.
During volatility explosions, that position can deliver 300%, 400% or even 500% returns. If a position makes 300%, turning $1,000 into $3,000, it completely offsets the directional losses.
Net result: your entire portfolio stays flat or even positive at $250 up.
This is not hypothetical — it’s exactly what’s happened during recent volatility events. Properly structured opposing positions transform potential chaos into asymmetric protection.
The key is simple: Stop treating portfolio construction as picking the right direction. Start seeing it as engineering a structure where volatility becomes an opportunity instead of a threat.
It can save your portfolio.
Kane Shieh
Kane Shieh Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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We develop tools and strategies to the best of our ability, but no one can guarantee the future. Past performance is not indicative of future results. On closed trades from Feb. 2, 2025, through Sept. 30, 2025, the average return per trade (including both winners and losers included) is 4.96% overnight, with an average gain of 13.8% and a 76.9% win rate.
