Trading Blog

Volatility Skew

Options are heavily priced off the expected volatility of the underlying asset. Options of the same maturity would normally be expected to have the same implied volatility irrespective of the strike price. Nonetheless, in practice, the implied volatility can vary materially depending on the strike. This is called the volatility skew. We’ll cover three forms […]

Fixed Versus Floating Exchange Rate Systems

Foreign exchange (forex) trading is very popular among day traders because the markets are very liquid and open 24 hours per day five days per week. With the rise of online brokers and a greater number of floating rate currencies, traders have numerous options. However, not all currencies are created equal. Some are under fixed/pegged […]

Will 2019 Be Another Bad Year For The Stock Market?

2018 has been a mostly poor year for the stock market and financial assets more broadly. The S&P 500 is down, and most public companies are in a bear market globally. In other words, their stocks are down 20 percent or more from their peaks. Global earnings growth is still positive, but a combination of […]

Does Focusing on the Trade War Miss The Point?

If you listen to stock traders, a lot of their focus is inevitably on the US-China trade war. Any rumor that floats the idea that trade relations are improving between the two nations moves stocks up a bit. And any rumor to the contrary punches them back down. But does it miss the point? If […]

Selling Options: When Do You Receive the Premium?

Options premium is often a confusing topic for those newer to this form of trading, particular when it comes to selling (often called “writing”) options. This should first be prefaced by saying that it’s never a good idea to sell options naked. In other words, don’t sell options without having the underlying position covered. There […]

Trade Idea: Delta Hedging

Delta hedging a single position in your portfolio – or even delta hedging your entire portfolio – is a relatively common strategy. It involves options, which are equity derivatives. The philosophical basis behind delta hedging is to be price neutral to a market rather than be directionally biased. Delta Hedging At the beginning of December, […]

How to Determine The Direction Of Financial Markets

How to determine the direction of financial markets? Focus on who’s buying and who’s selling. Too many who invest in stocks (and other financial assets) focus on relative valuation metrics and whether something is cheap or not. What a company is earning right now or has recently earned doesn’t matter. That’s already baked into the […]

11 Reasons Why Long-Term Traders Shouldn’t Fear Brexit

Brexit is a regular theme in the European financial press. It’s one of the most consequential geopolitical events so far this century. For day traders, the uncertainty can create related Brexit trading opportunities in UK assets (for the basic fact that their prices are more volatile). But for owners of UK financial assets, you probably […]

Is US Housing A Good Short?

Is US housing a good short (again)? It’s a topic of discussion among some observing home prices increase in excess of wages. But before we get into that, it would be helpful to cover where we are in the economic cycle. First, the macroeconomic backdrop: – US economic growth is slowing; growth will slow significantly […]

The Most Common Trading Mistake?

In trading, both at the retail and institutional level, the most common trading mistake is believing that what happened in the past is likely to happen in the future. Too many traders look at what’s worked in the past and assume it will continue to work. On top of that, they leverage that up, creating […]

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