Tag Archive | "risk"

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…

Three Survival Techniques

Tuesday, September 16, 2008

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First of all, we would be amiss if we didn’t congratulate our readers, and especially our subscribers, on staying cool and collected yesterday.  It’s very easy to get swept up in the panic and the buzz and forget that the S&P 500 is only 20% off its all time high from back in October.  A 20% decline is standard bear market fare; a few large companies failing is standard bear market fare; and despite what all the financial media are…

American Comintern

Tuesday, September 9, 2008

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“If anybody thought we had a pure free market system, they should think again.” - Robert Bruner, Dean of The Darden School of Business at The University of Virginia [h/t Top Gun FP] A number of readers have asked us for our take on the Freddie Mac/Fannie Mae bailout, so here it is.  In the financial blogosphere, reactions to events are immediate, if often half-baked; in academia, reactions are thoughtful but take months or even years.  We figured…

July Monthly Review

Sunday, July 20, 2008

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The theme for July was most certainly risk management.  The broad-based decline this summer has been quite breathtaking to watch, especially as all of the technical and sentiment-based indicators that we follow moved from oversold status to extremely oversold status to something like doubleplusungood.  Our attitude throughout late June and early July was that the unending litany of bad news deserved to be taken seriously, and that waiting around for the “inevitable bounce” and “inevitable VIX spike” would…

June Monthly Review

Saturday, June 21, 2008

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We feel like we’re saying this every month, but it sure feels nice not to have any skin in the game come expiration day.  Options expiration surely had something to do with the intensity of today’s selloff, and this was a textbook case of why we never hold positions into expiration. The fancy-pants phrase for the influence options expiration had today is “negative gamma.”  The practical significance of that phrase is that when we gapped down at the open, lots…

Fire and Forget: Iron Condors Have Built-in Hard Stops

Tuesday, June 10, 2008

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We’ve actually made this point before, but it bears repeating: iron condors have hard stops already built in. They’re called “long strikes.” So risk management is incredibly easy when you’re trading condors – it’s simply a question of determining how much capital you’re prepared to lose on any one position, and then selecting the appropriate number of contracts for your trade. Then fire and forget. You don’t need to set some arbitrary mental point at which you’ll exit the…

Playing Defense First

Friday, June 6, 2008

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As you probably saw, the markets staged a broad-based rally yesterday on reasonable volume. The rally kind of came out of left field, as there is still a major divergence across the market indexes, and getting long here seems like a rather risky move. For that reason, we do not plan to adjust our June positions at this time. There’s an old saying that “markets tend to crash down, not up.” But bromides aside, as we have written elsewhere,…

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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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