Trading BlogVolatility Risk Premium (VRP): Portfolio Strategies
The volatility risk premium (VRP) pertains to the compensation traders earn from insuring against market losses. This typically involves selling options and/or other derivatives to other traders and investors to protect against the downside exposure they have in their portfolios. To incentivize traders to underwrite these products, options tend to trade at a premium over […]Yield Curve Control: What It Is and Implications
Yield curve control has gone from more of an abstraction to a policy that many of the world’s most influential central banks are currently using or considering using. In the US, yield curve control, often known as YCC, hasn’t been employed since World War II. Back then, the very high economic demands of WWII required […]Market Neutral Strategy with Covered Calls and Puts
A market neutral strategy involves selecting individual securities to buy and short-sell such that roughly equal amounts of money are both long and short the asset class. The market neutral strategy is typically applied to equities, given the vast selection to choose from. Though it can also pertain to other asset classed like fixed income […]Making Better Decisions Trading in the Markets
Making better decisions trading involves knowing how markets function and what they value. Markets are information discounting mechanisms. Where markets go is not based on what things are at face value but what transpires relative to expectations that are already built into the price. To better illustrate this concept, let’s first consider an example. On […]SPAC: What Are ‘Blank Check’ Companies?
SPAC is short for a special purpose acquisition company, also known as a “blank check” company. A SPAC is essentially large pool of cash, which is listed on a public exchange with the sole purpose of completing an acquisition. It’s essentially a form of a backdoor IPO. SPACs are unique in that they have no […]Safely Make $50,000 Per Year From One Stock? Exploring the Collar Option Strategy
Who doesn’t want to invest in the stock market and make a “full” passive income? Everyone in the markets, from individual traders and investors to institutional funds, has the goal of generating income with the least risk. For the sake of this article, we’ll assume a “full” income of $50,000 per year. We’ll also assume […]Forms of Market Manipulation & How to Protect Yourself
Approaching trading from any narrow vantage point is difficult. Financial markets are a mix of different players with different motivations and different sizes. Some traders will use price levels and a mix of different indicators of where price and/or volume has been in the past. While markets can be responsive to those in a self-fulfilling […]Average Inflation Targeting (AIT): Impact on Asset Classes
At the Federal Reserve’s 2020 Jackson Hole symposium, Fed officials announced a new way of managing inflation, now called average inflation targeting, or AIT for short. The market basically ignored the announcement, as it didn’t seem entirely consequential with any near-term effects. But arguably it’s a notable announcement. Two main forces influence markets at the […]What is a Risk Premium?
The concept of a risk premium is one of the basic foundations of finance and applies to nearly all market participants and private business owners in some form. A risk premium is the minimum return that a riskier asset must exceed a safer asset in order to incentivize investment into it. For example, a 10-year […]Liquidity, Leverage, and Bull Markets
In this article, we’ll go through the general outlook for financial assets and factors related to the economy and portfolio construction. In particular, we’ll talk about bull markets primarily driven by central bank liquidity and how that builds leverage and risks into the system. The three big forces There are three big forces and […]Older Posts