Recently I finished reading a book on options that doesn’t explain the basics of calls and puts. The Greeks are on almost every page, but never defined, and it’s assumed that the reader already knows options strategies and acronyms (e.g., butterflies, condors, ratio spreads, ATM, OTM). Clearly the “The Option Trader’s Hedge Fund” is not for beginners. It targets serious traders that know the basics and …
In their fifteen year history, which includes the 2008/2009 financial meltdown, a grand total of three Exchange Traded Notes (ETNs) have gone bust due to credit default—all 3 were issued by Lehmann Brothers. The total loss to investors was less than $15 million. This article on ETF.com gives the detailed story. How many public companies have gone bankrupt, rendering their stock worthless, in the last …
In the past you could invest in mid-term volatility, four to seven months out, without worrying too much about the erosive effects of contango. That’s not the case anymore. Strategies that hold long/short positions in mid-term and short term VIX futures as well as ETPs that hold mid-termVIX futures such as Barclays’ VXZ and XVZ and ProShare’s VIXM are getting dragged down. Most of …
Recommended Papers Tales of the Unexpected by Andrew Haldane This accessible paper (only one equation) is the best that I’ve ever read on the differences between processes accurately modeled by Gaussian/normal distributions and those better matched by power law distributions. I have seen this distinction made many times, but this paper provided examples and reasoning that really helped me internalize the differences. Most of our stock …
An ideal volatility investment would hold its value during quiet times and then ride volatility up as the market panics. Barclays’ VQT and Invesco’s PHDG are two Exchange Traded Products (ETPs) that are designed to fill this need. These two products use the same methodology but differ in that VQT does not distribute dividends, effectively automatically reinvesting dividends, while PHDG distributes any dividends quarterly. The …
