Tag Archive | "options"

Why Conventional Hedging Methods Fail

Monday, September 27, 2010


This is the second post in the series I’m writing to introduce the VIX Portfolio Hedging (VXH) Strategy. I am discussing the problems with conventional portfolio hedging methods first – before getting into the details of the VXH strategy – because if widely-known conventional methods are suitable, then there’s little reason why anyone should consider a novel method. The two conventional hedging methods I’ll review are diversification (Modern Portfolio Theory), and portfolio insurance using long put options and option…

You Don’t Need the VIX

Tuesday, May 4, 2010


My colleague at Expiring Monthly, Adam Warner, has taken people to task over the last several days for obsessing over the VIX, and especially for misapplying it: OK, what’s wrong with this statement: Look at that…$VIX drops below 20 and pigs fly again.  Only reliable indicator that I know of that level. If you answered “everything” you would be correct. But let’s see how far off the reservation someone can go in 140…

New Research: Sentiment, Expectations, and Stat Arb

Wednesday, January 6, 2010


Some interesting articles have been added to the forthcoming list at Quantitative Finance. Cites and abstracts are below, with links to preprints where available. I don’t have time to add commentary at the moment, but am happy to answer questions in the comments section. Abel Rodriguez & Enrique Ter Horst, “Measuring expectations in options markets: an application to the S&P500 index.” Extracting market expectations has always been an important issue when making national policies and investment…

CME Making Gold Options More Tradeable

Thursday, October 1, 2009


CME Group published the following product update today: Effective Sunday, October 11, 2009 (trade date Monday, October 12), the following changes to the listing rules for COMEX Gold options will occur: The strike price interval will be set to $5.00 (CME Globex strike price increment=5) increments for all trading months on all venues regardless of the level of the underlying futures prices. Currently, the strike price interval is dependent on futures price levels as follows: $5.00…

The Next Shoe to Drop in Banking

Wednesday, August 19, 2009


The financial sector of the U.S. economy has had nearly a year to address the problems that exacerbated the crisis last fall. But many observers think that the banks haven’t done enough, and that another round of trouble may be developing for the sector. I will outline some of those concerns and then suggest some ways to use options to profit if there is indeed another shoe to drop in banking. The Thesis The primary obstacle facing large banks is…

VIX Fixation

Wednesday, August 12, 2009


It seems these days that the entire world is gasping at, of all things, minor twitches in out-month VIX futures. Earlier this week, Bloomberg’s strength ebbed and I caught them as, overcome, they whisper’d, “VIX Signals S&P 500 Swoon as September Approaches.” Like any financial headline that calls to mind men in breeches and whooping cough, this one should be regarded with skepticism. In the first place, VIX futures are signaling no such thing: even if the VIX popped up…

The Lazy Guide to Delta Hedging

Friday, July 10, 2009


In my last post on this topic, “Why Delta Hedging Matters,” I argued that an essential aspect of options trading is hedging away unwanted risks. For most traders, the unwanted risk is usually to directional price movement, or delta risk.  We discuss this issue in the context of trading iron condors a fair amount on the members area of the site, but the principle is just as important whether you’re short one call contract or managing a book of…

Why Delta Hedging Matters

Wednesday, June 24, 2009


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…

A Pause in Treasury Yields

Thursday, June 18, 2009

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A Bloomberg item out this morning wonders whether long-term Treasury yields have moved too far, too fast: The CHART OF THE DAY shows the difference between the yields on 10-year Treasuries and the year-over-year consumer price index, known as real yields, over the last 20 years. The gap approached 5 percent yesterday, the most since it was above 5 percent in December 1994, signaling bond investors concerned about inflation have pushed yields too high too quickly, according to Michael Shaoul,…

Iron Condors and Vertical Skew

Wednesday, June 17, 2009

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Member D. S. posed the following question: I’ve been trading SPY iron condors for some time now and I have been opening them at very similar levels to yourselves. However I have been using much wider spreads, so whereas you use a $2 spread I would use as much as a $10 dollar spread. What in your view is the value in only using smaller spreads? My reasoning on the larger spreads is as follows: 1) You can open the…


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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