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Tag Archive | "bias"

Diversifying Across Strategies

Tuesday, September 2, 2008

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One reason we are constantly on the hunt for new strategies is that humans, as a species, have a really hard time functioning outside of our cognitive biases.  Biases aren’t necessarily a moral failing – they’re not a failing at all, when you really think about some of them.  Maybe confirmation bias is a tendency that was selected for among our distant ancestors because individuals with the disposition to make some rough, if somewhat unjustified inferences were better…

Market Neutral, Not Delta Neutral

Tuesday, August 12, 2008

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There are plenty of ways to put on option trades that have a neutral outlook: straddles, strangles, condors, etc.  Whereas stock and futures traders are limited to whatever price action the market gives you, options let you take a view on implied volatility (vega), the passage of time (theta), and the rate of change of the rate of change of the option per unit move in the underlying (gamma).  Okay, that last one isn’t so obvious, but the idea is…

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