Blog Posts

The basis is a trading strategy that tries to exploit the temporary price differences between a futures contract and its underlying asset (e.g., commodities, bonds, stocks). Basis trading belongs to the broader category of arbitrage, convergence, or relative value strategies. Arbitrageurs try to capture small but relatively risk-free profits arising from price discrepancies in related […]

In fixed-income securities – particularly government bonds like US Treasuries – the terms “on-the-run” and “off-the-run” have important implications for traders. On-The-Run (OTR) Bonds – These are the most recently issued Treasury securities of a specific maturity (e.g., a 10-year Treasury note). They’re actively traded and offer the highest liquidity. Off-The-Run (OFFTR) Bonds – These […]

Contango and backwardation convergence strategies try to profit from the natural tendency of futures prices to converge toward the spot price of the underlying asset as the contract nears expiration.    Key Takeaways – Contango & Backwardation Trading Strategies Contango Convergence Strategy: Involves buying the front-month (or front-period) contract and shorting a later-dated contract. Tries […]

The Junk Bond/Treasury Convergence Strategy is a fixed-income trading approach that tries to take advantage of: perceived undervaluation within the high-yield (junk) bond market, relative to safer Treasury bonds hedging interest rate risk and profiting from the extra yield from junk bonds’ credit risk   Key Takeaways – Junk Bond/Treasury Convergence Strategy Higher Yield Potential […]

In finance, few names are as synonymous with success as Jim Simons, the head of Renaissance Technologies (RenTech) and its famed Medallion Fund. By leveraging his background in mathematics and using the power of quantitative trading strategies, Simons built Renaissance into one of the most successful investment management firms. In this article, we will explore […]

Trading strategy capacity refers to the maximum amount of capital that a particular trading strategy can effectively manage before its performance starts to deteriorate. Each trading strategy has a finite capacity determined by various factors, such as the liquidity of the traded instruments, the breadth of the investment universe, and the frequency of trading signals. […]

In portfolio optimization, the traditional approach has long been Modern Portfolio Theory (MPT), which focuses on constructing portfolios that maximize returns for a given level of risk. However, recent years have seen the emergence of an alternative method that’s come to be known as Hierarchical Risk Parity (HRP). This approach tries to create well-diversified portfolios […]

A diagonal spread in options trading is a strategy that involves simultaneously buying and selling options of the same type (either calls or puts) on the same underlying asset, but with different strike prices and expiration dates. It’s a form of spread trading. The option purchased has a longer expiration date than the option sold. […]

In periods of high market volatility, options strategies can be used to take advantage of or hedge against large price movements. We cover several such strategies in this article.   Key Takeaways – Options Strategies for High Volatility Options Strategies for High Volatility Long Straddle Long Strangle Inverse Iron Condor Modified Butterfly Spread OTM Options […]

A calendar spread is an options trading strategy that involves taking simultaneous long and short positions in options of the same underlying asset but with different expiration dates. The primary goal of a calendar spread is to capitalize on the time decay of options premium, also known as theta decay. A calendar spread can also […]