Archive | Options Education

Highlights from the CBOE Risk Management Conference

Monday, March 24, 2014

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The annual CBOE Risk Management Conference was held last week in Bonita Springs, FL, and it was a great opportunity to meet some old friends, make new acquaintances, and hear from some industry...

CBOE Hosts the 30th Annual Risk Management Conference

Thursday, March 6, 2014

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The Chicago Board Options Exchange is holding its 30th annual Risk Management Conference this month in Bonita Springs, Florida, from March 17-19. This is one of the top events of the year for the options industry, and the conference has developed a reputation since its inception for high-quality speakers and panels. The CBOE provides this description of the event: “RMC is an educational forum dedicated to exploring the latest products, trading strategies and tactics used to manage risk exposure…

Reading In Lieu of Bearishness

Tuesday, February 25, 2014

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You know that one slogan about how bearish investors always sound “smarter,” even if they’re wrong most of the time? I’m not sure that being able to conjure up obscure risk scenarios is the same thing as sounding smart. But nevertheless, here is a linkfest in the spirit of that slogan: sometimes, taking some time out to read is a good way to avoid buying stuff at too high a price. - “VIX options make exotics leap” – This…

Doing What It Says on the Tin: The Value of Volatility ETPs

Tuesday, February 18, 2014

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The iPath S&P 500 VIX Short-Term Futures ETN (VXX) launched in 2009, but after five years and many billions in transactions, it’s still a widely misunderstood product in some quarters. All of the volatility ETPs are, to some extent. A recent post at the Inside Investing blog for CFA Institute walked through some of the most familiar complaints about VXX, and I was going to link to a comprehensive rebuttal in the comments, but I couldn’t find one. I’ve written…

Upcoming Talk: Implied Volatility Term Structure & Time Spread Trading

Monday, January 13, 2014

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Time spreads (calendar spreads) are one of the most frequently discussed options trade structures, but I think they’re also one of the most poorly understood. The primary problem is that people describe the purpose of time spreads in ways that don’t differentiate them from the reasons you might trade a straddle or strangle. For example, you can find statements like these in many popular texts and on prominent websites: A garden variety calendar spread seeks to exploit the…

How Constant Maturity Indexes Can Mislead You

Monday, December 9, 2013

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A constant maturity index of implied volatility provides a point estimate for IV at a specific time to expiration – for example, 30 calendar days – by interpolating from the implied volatilities of the nearest series of listed options. Constant maturity indexes of implied volatility are valuable because they allow like-for-like comparisons of different periods in time for one security and for cross-sectional comparisons among securities that may not have listed options in the same expiration months. The most well-known constant…

Option value as a function of downside beta

Monday, December 2, 2013

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The chart below shows the relative attractiveness of major ETFs for hedging and speculative trades based on their market beta and implied volatility. Specifically, the chart shows the four-week downside beta of major ETFs against SPY along the x axis, with two month at the money put option implied volatility along the y axis. Down beta is calculated using only dates with negative market returns. Here’s how we use this information. High beta, low implied volatility ETFs offer…

The Gamma Problem for Straddles, Or Why VIX Futures Are Necessary

Monday, November 11, 2013

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One of the frustrating things about buying straddles is that the more correct you are, and the more quickly you are proven correct, the more quickly your position loses the ability to profit from volatility. A straddle opened as a bet on volatility quickly becomes a simple long/short bet on the underlying asset: straddles run out of gamma too quickly. A straddle is a position comprised of one call and one put on the same underlying asset with the same…

Covered call indexes around the world

Monday, October 28, 2013

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Would you have been better off selling covered calls over the last few months, or just buying and holding the underlying asset? The following chart shows the returns for several buy-write indexes on various global equity indexes along with crude oil and gold. These indexes sell out of the money call options against long positions in the underlying assets, and returns are displayed here as the difference over the past one and three months between the buy-write indexes and the underlying…

VXST, VIX, VXV, and the rest of the curve

Friday, October 11, 2013

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Rises in VIX and implied volatility in general tend to attract the attention of business reporters and other market watchers who do not usually follow options markets all that closely. I’ve seen several mentions recently, for instance, of the ratio of VIX to VXV as an indication of market stress, and some readers have asked whether I planned to write about this ratio sometime soon. The short answer is that I’ve been writing about VIX:VXV all along. The ratio of…

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Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More

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