Trade in Groups

Back in July 2008, I first noted that institutions were pulling back on options trading volume. Recently, Bloomberg has picked up on the story because the reduced supply has led to higher hedging costs – a simple application of Econ 101. The combo of less capital available to make markets in options and higher volatility […]

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Previously, we discussed how market returns are distributed by focusing on a single stock. This time, we are going to look at a focused but sector diversified ETF – the Financial SPDR (ticker: XLF). Remember, the tentative conclusions drawn before implied that historical volatility measures lose their value beyond a short time frame, and that […]

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Returning readers will be familiar with our continued negative outlooks for many of the market’s problem children – financials, REITs, and certain commodities. A short while ago, we posted about an aggressive series of trades on that thesis, and promised to track the progress of both the underlying positions as well as a specific options […]

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One of the buzzwords in the financial community in 2008 was “fat tail” – the outlier that breaks price returns from a normal distribution. Perhaps the most famous comment came from David Viniar, CFO of Goldman Sachs (ticker: GS), who said their models “were seeing things that were 25-standard deviation moves, several days in a […]

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Step aside Abercombie (ticker: ANF), H&M, and all other prophets of all things young and hip. While other retailers saw sales predictably crumble in the face of a difficult consumer spending environment, Urban Outfitters (URBN) has been a bit of an outsider. During the fourth quarter, which included a subdued holiday shopping period, Urban Outfitters, […]

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A while back, we demonstrated how high volatility relates to options premiums using a Geometric Brownian Motion (GBM) model. That might sound complicated, but the charts included in that article give a good visual depiction of volatility’s impact, so check it out. For a more simple explanation of why options are currently so valuable, consider […]

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