February 5. 2012, 2:45 PM
Trading NYSE VXX stock and hoping to get in on the first day of runs is a bit like the St. Petersburg Paradox invented by Nicolaus Bernoulli in 1713, an old riddle still relevant to investing today described recently in the WSJ:
The measurement of risk has been generally agreed upon since mathematicians first began to study risk. Expected values are computed by multiplying each possible gain by the number of ways it can occur, then dividing this sum of products by the total number of possible occurrences. (Source)
We would like to apply the St. Petersburg Paradox in a slightly different way for trading or investing in VXX.
Whenever VXX closes up:
What's the most you could gain investing #100,000 any time VXX closes up, and what's the probability of doing so?
You can use our calculated probabilities in Facts to post your answer in Comments — Let us know if you need more information.
We will withhold posting our answer until readers have a chance to answer.
Interesting followup to the St. Petersburg Paradox at