Tag Archive | "vertical spread"

Trading the Volatility Spike in YUM! Brands

Monday, December 3, 2012


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…

Same trade, different reasons

Tuesday, July 31, 2012


Here’s a question we received recently from a client, asking about the relationship between the vertical spreads we trade in the ETF Trend Options strategy and the iron condors associated with our core product: I have been trading these ETF Trend Option spreads for a while now. Some of them wind up as de facto put/call condors. Can you explain the fundamental differences between your regular iron condors and these de facto ETF condors? Except for the…

Combining Trend Following and Option Selling Strategies

Thursday, February 2, 2012


Historically, two of the most successful approaches to trading have been trend following and option selling. Trend following and momentum investing are strategies known to just about everybody, and option selling (i.e. collecting the volatility risk premium), while not quite as famous, is hardly a closely-held secret. Usually, these two approaches are treated as strangers. Momentum/trend traders are conceptually long volatility in that they are willing to accept small, frequent losses from choppy markets in order to reap gains…

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…

Options as a Language

Monday, March 16, 2009


Some traders are initially attracted to options because of the leverage they provide.  But leverage  is just a means for magnifying outcomes.  A leveraged risk-taker will experience more glorious wins and more disastrous losses, like a deranged person who shouts both poetry and obscenities (instead of whispering them quietly to himself, like the rest of us). We use options not for the leverage, but to articulate views that are otherwise ineffable, or are expressible only crudely.  For instance, a stock…

Option Spreads and Positive Expectancy

Thursday, February 19, 2009


Reader Peter T. writes in with a very good question: Then are several places on the site where you mention that you prefer to let the probabilities play out and not adjust condors. I calculated the expectation of the latest IWM trade based on the probabilities. I did some minor rounding to make it easier to read. There is a 65% probability of making $50 which comes to $32. There is a 35% probability of…

Warped, Frustrated Old Banks

Thursday, December 18, 2008


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.…

Random Walks and Random Jumps: Taleb on Volatility

Wednesday, September 17, 2008


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…


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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