Some traders are initially attracted to options because of the leverage they provide. But leverage, as anyone who’s followed the fate of the investment banks knows, 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…
As technology advances, the variety of tools and strategies available to individual traders increases accordingly, and for newer traders the sheer number of techniques and strategies on offer can be daunting. Short Term Trading Strategies That Work by Larry Connors is a nice introduction to some of the trading rules and strategies that have proven consistently helpful for navigating the markets.
One of the best things about this text is that each strategy or technique is treated in quantitative terms. Even perennial…
Traders tend to pay a lot of attention to expiration week, and for good reason. There are also some post-expiration phenomena worth noticing: in particular, unsophisticated options sellers often allow their front-month contracts to expire before selling the next series. There’s an apocryphal story about a big SPX condor seller who always used to wait until the Monday morning after expiration to route his single monster trade for the month. But we’ll leave discussion of the disadvantages of that approach for…
Volatility as an Asset Class: A guide to buying, selling, and trading third-generation volatility products, ed. Israel Nelken (London: Risk Books, 2007). Israel Nelken, one of the members of the CBOE New Products Committee, has collected 11 essays on the theory and practice of trading volatility as a distinct asset class. The first half of the book examines the measurement of volatility and ways to employ volatility models on several traditional underlying products. The second half is devoted to discussion…
Back during those halcyon days of early and mid-2008, when all anyone wanted to talk about was VIX spikes, the indispensible counter-argument from some of us in the financial blogosphere was that arbitrary absolute VIX numbers are basically meaningless, and that relative context is the thing when it comes to analyzing volatility.
Now that the low-volume summer blahs are (probably) over, maybe we’ll see some genuine premium hitting the options boards for the rest of the year, rather than being concentrated only…
Monday, March 16, 2009
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