What are we looking for in Risk Corridor?

Risk Corridor is a limit to how much we are willing to lose on a stock if it goes the wrong way. We don't enter into new positions with an undesirable Risk Corridor. For a potential Long position, the Risk Corridor is the percentage difference between the initial Sell-Stop and the Buy Price (calculation: (1 minus (Sell-Stop divided by Buy Price))). Likewise, the Risk Corridor for a potential Short position is the percentage difference between the initial Cover-Stop and the Short-sell Price (calculation: ((Cover-Stop divided by Short-sell Price) minus 1)). 

A Risk Corridor of under 5% is probably too small (the stock has no wiggle-room). Over 30% is probably too high (a +30% loss is very painful). We prefer candidates in the 10% to 20% range. When the Risk Corridor is outside these parameters, we consider the stock to be too risky at this time/price level.

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