The Powershares Nasdaq 100 Trust (QQQQ) is a highly liquid, very popular ETF with actively traded options. But for traders who want to implement an options strategy on the Nasdaq 100 with any precision, QQQQ may not be the optimal product.
Assume you are trading a strategy that includes the following rule:
When the 14-day Relative Strength Index (RSI) closes below 30, sell a put with a delta of -20 in the nearest cycle with at least 14 days until expiration.
We regularly…
Although the major equity indexes are highly correlated, they tend to diverge in meaningful ways on a day-to-day basis. The same is true for the implied volatility indexes that track equities. It’s also common for equities and implied volatility to move inversely on a daily basis – the expectation is that, most of the time, if the S&P 500 closes up, the VIX is likely to close down.
It’s very uncommon for both the equity indexes to all close higher and…
I propose the following rule of thumb for VIX interpretation:
If you think some VIX movement entails a proposition p and movement in the other volatility indexes VXN, RVX, and VXD doesn’t entail p, you shouldn’t believe p.
Why accept this rule? Because equity indexes are highly correlated, especially over the very short term, and volatility indexes are calculated using the same methodology, such that in the case of a divergence of one volatility index from the others, the majority rule. Here’s a…
In this mini-series, we’re examining the value of beta as a measurement of risk. In this post, we want to examine how the betas of some popular stocks, indexes, and ETFs changed during 2008 and especially during the fall crash. First, we should clarify exactly what we’re measuring.
What is beta?
Beta is metric that describes the systemic risk of an asset or portfolio. Because it is not possible to alleviate all risk by simple diversification, investors and traders use beta to…
The old maxim is that when major market movements occur, all betas go to one. We decided to look at the beta for a few stocks during 2008 to determine whether and to what extent that maxim held true.
The reason we wanted to investigate the beta exhibited during 2008 – and especially during the fall crash – is that investors and traders use beta as a measurement of how risky an asset is relative to the market, with the goal…
Friday, December 11, 2009
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