Russell Rhoads draws a great analogy between volatility spikes and a famous incident in show business history:
On May 6, 1994 Robert Francis Goldthwait made his...
The emerging post-election consensus is that the fiscal cliff is more likely to be addressed without roiling markets. President Obama, the theory goes, is stronger politically than he was in 2011, and Speaker Boehner also has more control over the Tea Party wing of the Republican party. The new power dynamic should make it easier for moderates to find a palatable mix of revenue increases and spending cuts.
This morning, John Carney mentioned an alternative view:
The…
Are you better off now than you were four years ago? What about one year ago? If you’re like most investors, your market sentiment has probably improved substantially. There are plenty of ways to measure investor sentiment – we could look simply at the run-up in stock prices, or use a more sophisticated metric like the level of implied correlation. In between those two estimates, we might also look at the implied volatility of stock options, measured as a percentage…
Financial markets change along with the real economies on which they depend. This maxim applies to investing strategies and options markets, too. For example, the “fire and forget” approach to option selling that some traders favored in the pre-crisis world is no longer tenable (if it ever was). Risk appetites have shifted, order flow is moving into different products, and the cast of influential market agents is composed of different actors. As detailed in the attached video, here are some…
In 1993, CBOE launched VIX. It’s fair to say that, at the time, most of the people who knew about VIX probably had a good idea of what the volatility index was and how it worked (since so few people knew about it). Nearly 20 years later, and despite millions of dollars spent on education and instruction, I think it’s likely that the ratio of informed VIX-watchers is much, much lower. VIX shows up on regular nightly newscasts – everyone…
Here’s a question we received recently from a client, asking about the relationship between the vertical spreads we trade in the ETF Trend Options strategy and the iron condors associated with our core product:
I have been trading these ETF Trend Option spreads for a while now. Some of them wind up as de facto put/call condors. Can you explain the fundamental differences between your regular iron condors and these de facto ETF condors? Except for the…
Every investment is an instance of a more general schema:
Because of q, I believe that p, so I will risk some money to make a profit if p is true.
The proposition p could be about anything: it could be about the value of a company, the yield of a crop, or the outcome of a football game. Every case in which you risk some capital in order to profit from a future event is composed of the two activities mentioned in that…
There is a well-established formula when it comes to books about options. The typical options book has sections that explain what puts and calls are, that review the different spread types, that explain the greeks, and that discuss implied and historical volatility. One reason I liked The Option Trader’s Hedge Fund: A Business Framework for Trading Equity and Index Optionsis that it breaks that formula. Chen and Sebastian approach options trading through the metaphor of “The One Man Insurance Company,” (TOMIC)…
Just kidding: you can’t.
By “technical analysis” I mean the practice of drawing inferences about likely future prices based on the visual patterns displayed on a chart. We can exclude rules-based, objective strategies here: those are beyond reproach because they can easily be verified. For example, “buy asset x when the n-period moving average crosses above the m-period moving average” is a strategy we can test historically and rigorously – a computer can do much of the hard work of…
Here is the second part of my interview with Tadas Viskanta, author of Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere. We cover a lot of interesting material here, including the idea of using financial advisors as a buffer against our own cognitive biases, Tadas’s idea of consilience among different disciplines, and what kind of changes we can expect in the world of financial services.
Over at TheStreet’s OptionsProfits, I write a daily column looking at trade ideas and volatility and all the other sorts of things you’d expect from an options trader. One kind of trade we like to look at is when you sell options, especially puts, after a major news event has caused an otherwise healthy stock to take a dip. We looked recently at the implied volatility in options on stocks like Wal-Mart (WMT) and OpenTable (OPEN) and, ultimately, decided there wasn’t an attractive…
Thursday, May 9, 2013
0 Comments