Tag Archive | "hedging"

Why Delta Hedging Matters

Wednesday, June 24, 2009

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Some traders use options to speculate on the price movement of an underlying asset; other traders use options to speculate on changes in the volatility, implied or realized, of that asset.  Put a little differently: while no options trader can afford to ignore the role that volatility plays in the price of a contract, not all options traders are interested exclusively or even primarily in volatility. If you’re essentially a stock picker who likes to lever up by buying puts…

Beta and Risk in Troubled Markets, Part 1

Thursday, January 15, 2009

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The old maxim is that when major market movements occur, all betas go to one.  We decided to look at the beta for a few stocks during 2008 to determine whether and to what extent that maxim held true. The reason we wanted to investigate the beta exhibited during 2008 – and especially during the fall crash – is that investors and traders use beta as a measurement of how risky an asset is relative to the market, with the…

Random Walks and Random Jumps: Taleb on Volatility

Wednesday, September 17, 2008

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Nassim Nicholas Taleb, author of the widely discussed The Black Swan and Fooled By Randomness, is out with a new paper.  “The Fourth Quadrant: A Map of the Limits of Statistics” pursues a thesis very familiar to his readers, namely that economists and finance professionals put society at risk by offering false comfort in the form of statistical models. Risk Does Not Equal Volatility The novel effort here is Taleb’s attempt to map out which kinds of risks and…

8 Hedging Ideas for Iron Condors, Part 1

Saturday, April 26, 2008

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What should you do when the underlying moves against an iron condor position you have open? (For example, if you’re a member, you may have noticed that one of our DIA trades for May expiration is looking threatened by the recent price action in the index.) Any time this situation arises, people will always write in to ask about how they can “adjust” or “fix” the trade if the market continues to be uncooperative. It’s an understandable impulse to want…

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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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