The point of my comment was that even if you’re 100% sure about the eventual interest rate move (which of course nobody can be), you still have major risk from path dependency (as shown by the concrete example). You haven’t even given a back-of-the-envelope calculation for the risk-adjusted return, and the “first-order approximation” you did give (which both uses leverage and ignores all risk) may be arbitrarily misleading, even for the purpose of “gives an idea of how large the possibilities are”. (Because if you apply enough leverage and ignore risk, there’s no limit to how large the possibilities are of any given trade.)
We welcome other criticisms to discuss, but comments like your first line are not helpful!
I thought about not writing that sentence, but figured that other readers can benefit from knowing my overall evaluation of the post (especially given that many others have upvoted it and/or written comments indicating overall approval). Would be interested to know if you still think I should not have said it, or should have said it in a different way.
The point of my comment was that even if you’re 100% sure about the eventual interest rate move (which of course nobody can be), you still have major risk from path dependency (as shown by the concrete example). You haven’t even given a back-of-the-envelope calculation for the risk-adjusted return, and the “first-order approximation” you did give (which both uses leverage and ignores all risk) may be arbitrarily misleading, even for the purpose of “gives an idea of how large the possibilities are”. (Because if you apply enough leverage and ignore risk, there’s no limit to how large the possibilities are of any given trade.)
I thought about not writing that sentence, but figured that other readers can benefit from knowing my overall evaluation of the post (especially given that many others have upvoted it and/or written comments indicating overall approval). Would be interested to know if you still think I should not have said it, or should have said it in a different way.