Archive | Technical Analysis

Two recent publications: volatility of volatility and put-call ratios

Monday, September 16, 2013

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I wrote two articles this summer for Active Trader magazine.

My article in the June 2013 issue, "

130/30 Strategies as Expensive Beta

Monday, December 17, 2012

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Only a few years ago, 130/30 funds were all the rage. They allowed equity managers who had traditionally been bound to a long-only strategy to make use of short exposure to shape their portfolios. The ability to take short and levered long positions was supposed to reduce the overall riskiness of the portfolio and also to provide new ways to beat the benchmarks, e.g. by adding long exposure to the best stocks in a sector and taking short positions in…

The Apple VIX and Some Applications

Thursday, December 13, 2012

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I got the chance to chat yesterday with Phil Pearlman of Stocktwits for Reuters TV. We were talking about VXAPL, the CBOE’s application of the popular VIX methodology to AAPL options. Here are some additional points building on the ideas we covered there. First, while VXAPL moves broadly in sync with equity index implied volatility, the idiosyncratic moves in the stock cause VXAPL to diverge at times. That makes it worth watching: this and the other…

Volatility Analysis: The Next Step in Trading

Monday, July 30, 2012

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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…

How to Perform Technical Analysis on the VIX

Tuesday, July 3, 2012

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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…

Storytelling and Technical Analysis

Saturday, February 4, 2012

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Humans can’t not tell stories: that’s the result of decades of research in cognitive science, psychology, neuroscience, and philosophy into our tendency to string together disparate events into coherent narratives. If you’re philosophically inclined, you know that David Hume got it right centuries ago: when we identify causation, what we are really doing is composing fictions to help us make sense of the buzzing world around us. But it would be a mistake to confuse our convenient fictions with the…

The Bears Are Back in Town

Friday, August 27, 2010

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In addition to the spate of disappointing headline economic numbers this week, there’s been an effusion of bearish sentiment in the news. The doom and gloom first buzzed my radar on Saturday, with the New York Times story, “In Striking Shift, Small Investors Flee Stock Market”. Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group.…

Backtesting Options Trading Strategies

Monday, April 12, 2010

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It is a relatively simple matter to backtest a strategy trading price-based expectations: a little spreadsheet know-how or, failing that, any of the scores of software packages now on offer will get the job done. But testing the historical performance of well-defined options strategies involves much more complexity, and imposes significantly greater data requirements. The difference between stocks/futures/forex and options is so great, in fact, that no retail platform today offers a straightforward way to run thorough tests of quantitative…

The Validity of Head and Shoulders Patterns

Thursday, July 16, 2009

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At Friday’s close, technicians were generally pretty bearish on equity indexes, based on the head and shoulders pattern identified below. (Click images to enlarge.) Of course, this particular setup hasn’t panned out well so far: In the jargon, this week’s rally decisively violated the neckline and pushed up to attempt a retest of the right shoulder. I am unsure whether there are any vaunted technical analysis conventions allowing for mutant patterns featuring two right shoulders, but yesterday’s move…

A Bullish Sign in the “Golden Cross”?

Thursday, July 2, 2009

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In case you’ve missed it, technical analysts have been atwitter over sightings of the mystical-sounding “golden cross”. Among the latest observations from the mainstream business press are a Barron’s online article posted yesterday and a Bloomberg piece from last week, but recent talk of the fabled Crux Aurea dates back at least as far as early June, when the daily chart of the Nasdaq Composite Index showed the 50-day simple moving average crossing above the 200-day…

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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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