The Short Side of Kelly (Part 2)

A second cautionary takes on trading with the Kelly criterion By Anton Kulikov The Kelly criterion, a mathematical concept that supposedly pinpoints how much of a bankroll to wager or invest, can maximize profits over time.  Say someone offers an even payout on the flip of a coin, but the player knows the coin is … Continued

GameStop Games Stop — A Post-Mortem

A short primer on short interest and the short squeeze GameStop (GME) caused quite a commotion in the markets early this year when its historic rally became headline news for nearly every major media outlet. In fact, play-by-play coverage of the electronic game retailer’s seesawing stock prices pushed news of the markets’ substantial volatility off … Continued

The Semiconductor Trade: Correlation & Volatility

The sector yielded startling increases last year, but it’s not right for every portfolio Semiconductors have become increasingly popular with traders because of the sector’s deep liquidity and potential for large moves. Let’s examine the two largest exchange-traded funds, or ETFs, that track semiconductors: iShares PHLX Semiconductor ETF (SOXX) and VanEck Vectors Semiconductor ETF (SMH). … Continued

Big Moves are Price Predictors

Big news about big moves—when a stock moves up or down by 2% or more, the probability of subsequent big move increases. Regular readers of the Tactics section know Luckbox avoids market forecasting in terms of direction. However, recent groundbreaking research by the tastytrade in-house research team shows some predictability in the magnitude of outsized … Continued

Just Another Trading Day

Markets don’t move much when America goes to the polls What happens to the markets during a presidential election? Not much. History indicates traders need not fear a large move to the downside or the upside. Take a look at all of the presidential races since 1932, and see how the market reacted after election … Continued

Low Price, High Risk

Beware of low-priced high-volatility stocks—they’re usually no bargain Novice investors are attracted to stocks that sell for low prices, say $5 or less, because they can own a significant number of shares for a small amount of capital. What’s more, they can realize huge returns in a short time.o Focusing on the implied volatility of … Continued

Economic Insensitivity

Traders can reduce risk by trading products that aren’t closely tied to unpredictable macroeconomic swings Basing trading decisions on an opinion about the economy isn’t easy. One indicator may signal strength while another indicates weakness. Meanwhile, economists and the Fed hedge their statements. It’s enough to make an investor yearn to be free from economic … Continued

This is No Amazon Delivery

Trading crude oil presents daunting challenges when its price falls into negative numbers and the owner must take delivery. Here’s a look at the high cost of free oil. The COVID-19 pandemic’s major disruptions to the global economy have trickled down to the global stock markets and caused massive spikes in volatility. For reference, the … Continued

How This Sell-Off Stacks Up

Stocks declined in value more quickly this year than ever before Volatility had been slowly declining in the markets for the last 11 years, but then the coronavirus-fueled downturn of 2020 struck like a bolt of lightning. Here is some perspective. Generally, sell-offs in the equity markets cause volatility to increase because markets tend to … Continued

Trading the Gold-Silver Ratio

Here’s the simplest way to reduce portfolio volatility by pairs trading the two heavy metals In the world of pairs trading, the gold to silver ratio ranks as one of the most popular trades because of its stable correlation and tendency to diverge in price. What does all that mean to traders? The gold to … Continued