Mean Reversion
|
Respecting the tendency of some securities prices to return to their long-term mean is an essential trading strategy.
While hype can inflate markets like hot air in a balloon, prices tend to return to Earth at a moment that’s notoriously difficult to forecast. Conversely, underpriced stocks often regain the value they’ve lost. These are reasons traders can put a little faith in the statistically backed mean-reversion strategy.
Still, the strategy works only for a handful of mean-reverting asset classes that oscillate around a historical average price. Many futures markets have recently begun moving beyond their average price, but even that trend presents an intriguing opportunity for mean-reversion traders.
How so? Well, mean...
Intermediate
-
Manage Risk by Monitoring Key Levels in the Indices
|Reaching certain price milestones can mean it’s time to take action -
SMCI: Overextended, But a Potential Stock Split Could Push Shares Higher
|Shares of Super Micro Computer (SMCI) are up 180% so far in 2024, and could rally further if the company announces a stock split -
How to Structure a Volatility-based Pairs Trade
|Much like traditional pairs trading, a volatility-focused pairs trade hinges on an existing strong correlation between the two underlyings -
Using LEAPS Options to Play the 80% Correction in Lithium Prices
|After an 80% price correction in 2023, the lithium market appears poised for a rebound, especially if the global economy grows at a faster than expected pace in 2024 -
Platinum Looks More Attractive Than Gold Heading into 2024
|Platinum has lagged gold in 2023, pushing the gold/platinum ratio toward an extreme, and making platinum look relatively inexpensive in gold terms -
Washout in the S&P 500’s P/E Ratio Could Signal a Market Bottom
|Over the last several months, the S&P 500 has corrected by about 10%, and the current selloff could intensify if expectations for ongoing corporate earnings don’t rebound soon -
This or That: Gold-focused ETFs Outperform Gold Mining Stocks During Recessions
|Gold prices are up about 10% so far in 2023, but for those expecting a recession to develop in the foreseeable future, it may be best to avoid gold mining… -
Spotting a market bottom with the put/call ratio
|Historical data demonstrates that extreme readings in the put/call ratio have been a fairly reliable indicator when it comes to signaling potential market bottoms -
Trading a Bear Market With Zero-Day Options
|New tastylive research highlights how zero-day options, O DTE, puts can be used to express a bearish outlook. -
Measuring Tail Risk Using the CBOE Skew Index
|In the wake of the recent bank failures, tail risk in the U.S. financial markets remains elevated, as measured by the CBOE Skew Index -
Pairs Trading All-time Highs in the FTSE 100
|As of early January 2023, the FTSE 100 index—often referred to as the “Footsie”—is on the cusp of breaking above its all-time record high of 7,903, which was set back… -
Two Bullish Strategies for 2023
|When playing a rebound, investors and traders often use long stock or short puts—both of which have produced historically attractive win rates, but with different associated risk profiles. -
Three Ways to Short the Market
|A menagerie of options strategies called zebras, lizards and spreads can help investors profit from a continued decline in stock prices in the new year Active investors have become accustomed… -
The Next Fed Meeting is in December, Here’s How to Trade It
|The last 2022 meeting of the Federal Reserve is set for Dec.13-14, and market participants can trade that event using Treasury yield futures or government bond ETFs -
Your Trading Guide to International ETFs and American Depository Receipts (ADRs)
|Investors and traders seeking market exposure outside the U.S. can consider international ETFs and ADRs—both of which trade on American exchanges, and offer associated equity options -
Why Short Monthly Options Outperform Short Weekly Options
|New research conducted by tastytrade shows the performance data for short monthly options tends to be more attractive as compared to short weekly options—even amidst heightened volatility -
Managing Volatility Around the Midterms
|The market expects this election cycle to cause large price moves Midterm elections often cause volatility, and the markets are acting accordingly. Volatility futures (/VX) show the possibility of lots… -
Tracking and Trading Market Fear With These Three Options Metrics
|Investors and traders can track "fear” in the marketplace using the CBOE Volatility Index (VIX), the Skew Index (SKEW) and the SPX Total Put/Call Ratio. -
3 Tips When Selling Options
|When considering short options positions, market participants often weigh three important factors: Implied volatility rank, the CBOE Volatility Index (VIX), and undefined risk vs. defined risk -
3 Trading Strategies for a Bear Market
|Amid bear market conditions, investors and traders can utilize several strategies to express their market outlooks, including dollar-cost averaging, bear put spreads, and bull put spreads.