Tag Archive | "puts"

Trading the Volatility Spike in YUM! Brands

Monday, December 3, 2012

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YUM! Brands has been regarded for some time as a play on discretionary spending in China – as part of the shift from exports to domestic consumption. Given that framing, YUM investors are pretty sensitive to changes in data coming out of China. After the market close on Thursday, YUM guided lower on Q4 sales in China. Half of the operating profit in the third quarter came from China, so a forecast for a 4% drop in same-restaurant sales…

Why Conventional Hedging Methods Fail

Monday, September 27, 2010

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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…

The So-Called Financial Lexicon

Tuesday, July 7, 2009

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Every time I write about financial journalism, I always end up sounding cantankerous and bitter. So let’s start things off with some genuine praise. The story “Biggest VIX Drop Hides Options Bets S&P 500 Will Fall” yesterday from Bloomberg includes the following: The reading indicates a 68 percent likelihood the S&P 500 will fluctuate as much as 7.3 percent in the next 30 days, according to data compiled by Bloomberg. That compares with the VIX’s all-time high of 80.86 in…

The Volatility Risk Premium in Index Options

Friday, April 17, 2009

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Two academic papers recently discussed over at the CXO Blog provide some good analysis of the volatility risk premium in equity index options.  The volatility risk premium is just the difference between the realized volatility of the underlying and the volatility implied by options prices.  What numerous academic studies have found is that index options are consistently priced at a higher volatility than is realized over the relevant time period. “The Volatility Premium” (Eraker 2008) locates one source of…

Warped, Frustrated Old Banks

Thursday, December 18, 2008

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Mr. Potter: [to George Bailey] Look at you. You used to be so cocky. You were going to go out and conquer the world. You once called me “a warped, frustrated, old man!” What are you but a warped, frustrated young man? A miserable little clerk crawling in here on your hands and knees and begging for help. No securities, no stocks, no bonds. Nothin’ but a miserable little $500 equity in a life insurance policy.…

Sans Synthetic Shorts

Wednesday, September 24, 2008

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When the details of the short-selling ban began to leak out last week, options traders around the world snorted and said to themselves, “So what?”  That’s because it is easy to simulate a short stock position using options.  A synthetic short stock position is composed of one long ATM put option and one short ATM call option, on the the same underlying and in the same expiration cycle.  It has a risk profile identical to that of being short equity…

A Better Way to Play With Materials (XLB)

Sunday, July 13, 2008

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The Striking Price column in this weekend’s Barron’s features John Marshall from Goldman, who suggests an “opportunity to buy volatility” in the S&P Materials sector via the tracking ETF (XLB).  He makes the bearish case for XLB, arguing: 1) that the materials sector is particularly vulnerable to any slowdown in global growth, 2) that the ETF components include some less resilient names, and don’t feature the best of breed like POT and MOS, and 3) that hedge funds are…

Bonus Trades: Long Financials, Short Energy

Thursday, April 10, 2008

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These are very short term overbought/oversold technical plays only. Energy (XLE) Thesis: The Energy ETF is well overbought on a short-term basis – practically maxed out at 99.98, and the implied volatility relative to its historical volatility over the past 21 sessions is also giving a sell signal. Trade: Buy buy buy lots of naked puts!  Just kidding.  The XLE April 80/82 call vertical is selling for about $0.60. There are only 8 days left until April expiration if things…

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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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