Tag Archive | "dia"

Rising correlation and stock volatility

Monday, November 19, 2012

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In 2011 and early 2012, one of the big themes was the elevated correlation among individual stocks. In the “risk on, risk off” environment, investor appetites for stocks were indifferent to the fundamentals of particular companies: trades were all about the macroeconomic risks. You can get a sense for the major swings in stock correlation by looking at the three month correlation among the Dow Jones Industrial Average components since 2008 – see the bottom panel in fig. 1. One…

Delta, Like Everything, Decays

Monday, October 4, 2010

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Standard accounts of the option Greeks will explain that delta measures the rate of change in the price of an option per unit change in the underlying asset. The text I use with mentoring clients, Natenberg’s Option Volatility and Pricing, provides some additional helpful ways of thinking about delta: as a ratio of underlying contracts to options required to establish a neutral position, e.g. for every five 40-delta calls purchased, two underlying contracts (or two hundred shares of…

August Monthly Review

Tuesday, September 8, 2009

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The unrelenting August rally put some pressure on the call side of our iron condor positions. However, we were able to close out the month with flat-to-positive performance for the newsletter trades due in part to our ability to stagger trade entries based on volatility and delta exposure and to size positions on a risk-adjusted basis – both techniques that we teach on the members area of the site. We are nearing the end of the September expiration cycle and…

Should Market-Neutral Options Traders Diversify?

Monday, August 31, 2009

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We generally restrict iron condor trades in our paid newsletter and managed accounts to index products. For those who prefer ETFs, we look at SPY, DIA, IWM, QQQQ; otherwise, SPX, RUT, NDX, DJX are bigger proxies, or on the futures side of things we’ll look at the Emini S&P 500 or Nasdaq 100 (ES and NQ). The reason we trade index products is that diversification reduces the impact of company-level surprises: an iron condor on, say, RIMM will get…

November Monthly Review

Sunday, November 23, 2008

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In last month’s review, we noted that extremely volatile market environments can sometimes be your friend: The good news is that, as we’ve been advising our subscribers, periods following intense market selloffs historically have been the most profitable ones for our strategy, and as implied volatility has already declined from its earlier peaks, we are already seeing some fantastic profits on our positions for the November cycle.  An elevated volatility environment is torturous for swing traders and ulcer-inducing…

Incredulous Bears We Are

Tuesday, August 5, 2008

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In spite of all the fashionable buying today, our outlook over the next week or so isn’t particularly bullish, and here are some reasons why: Historically, it is really uncommon for the market to move up 2% the morning before a Fed announcement… …and in general, these big Fed rallies tend to end either in boredom or in tears over the following several trading days.  Over the past decade, these kinds of flashy rallies have been sustained less than…

Equities Can’t Get a CLUe

Friday, July 25, 2008

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Ok, stupid pun.  But the August crude futures contract (CLU8) is down another $2 today (about 1.6%), and the market indexes don’t seem to care that much.  While the NDX(QQQQ) and RUT(IWM) are up about 1%, SPX(SPY) and DJIA(DIA) are only modestly higher.  A small rally this morning faded pretty quickly, and we wouldn’t be surprised to make a new low for the week into the close. Among the key sectors we follow, broker/dealers, banks, and biotech are bringing up…

Bullish Roller Coaster

Tuesday, July 1, 2008

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The market took us for a real ride today.  We sent a note out to members well before the open when the Dow futures were down over 100 points on rumors of a pending Israeli attack on Iran.  While we didn’t get the high volume capitulation selloff we were hoping for today, this action is good enough.  Traders stepped in and bought the gap down right away, and we moved into positive territory by 11:00 (the better-than-expected ISM report certainly…

Dow Slips Below 12k on Whatever Random News

Wednesday, June 18, 2008

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We got a round of the correlation game started this afternoon, but it went nowhere fast: either headline writers are getting smarter, or today’s action is just too tenuous even for them! We realize we’ve never codified the rules of this game before, so: Get your officemates or pals together, and visit the financial homepage of any mainstream media outlet. Y! Finance, Bloomberg, even CNN Money will do. Scan the top headline. If the headline makes a dubious…

Our Broken Economy

Wednesday, June 11, 2008

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Forgive us a short rant this evening. This country is sick. When the three main engines of growth – consumer spending, real estate, and financial services – are broken, it’s just not possible to make any economic progress. And for just a moment, let’s think about how pathetic those key sectors really are. Cogent analysis of our per capita consumption requires some historical knowledge, since no contemporary people compares with our particular level of decadence. At least the Romans had…

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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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