Felix Salmon is skeptical about the ability of average investors to protect themselves from major economic risks:
[T]here really isn’t an easy or obvious way for an investor to be highly risk-averse in this market, not when one of the biggest tail risks that people want to protect themselves against is inflation. Big investors can try taking the Taleb approach of buying large numbers of out-of-the-money options and reckoning that a bunch of them will pay off when the next crisis hits,…
The Rookie’s Guide to Options: The Beginner’s Handbook of Trading Equity Options
Mark D. Wolfinger (W&A, 2008)
One of the ideas central to Mark’s work in his blog, his magazine articles, and in this book is that options are an excellent tool for just about any investor who wants to manage risk more effectively. What’s especially admirable about this book is that it takes a reader with no prior knowledge about options from the most basic concepts all the way through to…
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…
Reader S. V. raises an interesting question:
I am working on scenarios to trade the contra-ultra indexes like SDS to take advantage of either a combo spread (selling puts and buying call) or another method to take advantage of price movements while reducing risk. Any thoughts?
Interesting idea. These Ultrashort ETFs have really gained in popularity and most of them (like SDS, DXD, QID) now have enough volume to make them decent trading vehicles. The actual stock, that is. The options are…
Thursday, November 12, 2009
6 Comments