Stock options can triple in volatility as election day approaches, creating opportunities for traders to sell when prices skyrocket Expectation of movement in the markets helps determine the price of the options that traders rely on for “insurance.” The greater the risk of loss, the greater the cost of the insurance. Expectations are measured with … Continued
With some (relatively) simple math, traders can track price moves in stocks and indexes When a stock or index is down on the day, financial media and self-proclaimed market gurus describe it as “volatile,” even though that down move just brought the stock back to where it started before it rose. “Experts” improperly use the … Continued
Exchange-traded funds provide a good way of trading economically sensitive interest rates Few products are as costly and complex as interest rate futures. For retail traders looking for interest rate exposure, Treasury ETFs are a much better place to start. But before buying a bond ETF, take the time to understand a few basics about … Continued
Learn the idiosyncrasies of intramarket spreads—trades where an investor simultaneously buys and sells the same futures contract in different expiration months Professional traders seeking commodity exposure often make futures their preferred investment vehicle because of their capital efficiency, exactness in tracking an underlying spot market and deep liquidity. But unlocking the benefits of futures can … Continued
Just when investors need diversification in the most volatile markets ever, traditional equity products are failing as hedges and diversification tools With the coronavirus sweeping the globe, equity markets are careening from highs to lows and back again with more volatility than ever before. During the last three years the average daily move in the … Continued
For a pairs trade, find two highly correlated assets that have recently diverged in performance Pairs trading involves buying and selling related markets to capitalize on performance disparities. Traders can use the strategy to reduce outright risk, diversify a portfolio and find new trading opportunities when markets seem recalcitrant. To structure a pairs trade, look … Continued
That’s the greatest financial innovation of the last 20 years? Weekly options? Digital currencies? Zero commissions? It may come as a shock that many consider exchange-traded funds (ETFs) the biggest and most important change. After trading ETFs for so long, it’s easy to forget how capital markets used to look—illiquid and expensive. But it’s important … Continued
Traders can spread risk with calendar spreads, pairs trades and options Short naked options are a preferred strategy among experienced traders because of their high probability of profit, ease of management and positive theta. But these strategies also have a significant drawback: large buying power requirements. Because of their large theoretical risk, selling naked options … Continued
Buying an expensive “portfolio insurance policy” hardly ever works In Chicago, the weather can seem as volatile as the market. A day that begins with a 5% chance of rain can end with a torrential downpour. In a similar way, buying put options to protect a portfolio against a downturn seems a lot like grabbing … Continued
Basing trades on public announcements and earnings reports can generate profits without a major investment of time Investors always have something to trade, thanks to a six-and-a-half-hour equity trading day, extended hours for futures and weekend crypto markets. But not everybody has time to trade. It’s impossible to stay glued to the screen because other … Continued
