Blog Posts

Selling in-the-money (ITM) options is a strategy that often confuses both novice and experienced traders. For those selling ITM options “naked,” it’s often pursued by traders as a way to avoid paying margin interest or borrowing fees by simply buying or shorting the underlying. It can also be combined with other options positions as part […]

Aega, Sega, and Rega are advanced risk measures that go beyond traditional Greeks like Vega, Vanna, and Volga.   Key Takeaways – Aega, Sega, and Rega Aega, Rega, and Sega provide more comprehensive risk analysis for options with volatility smiles. They measure sensitivity to ATM volatility, risk reversal, and butterfly/strangle premium respectively. These metrics offer […]

The Option-Adjusted Spread (OAS) is a concept in fixed-income securities analysis, particularly in evaluating bonds with embedded options, such as callable or putable bonds. It represents the spread that traders receive over a benchmark yield curve, adjusted for the value of embedded options.   Key Takeaways – Option-Adjusted Spread (OAS) Risk-Adjusted Comparison OAS allows traders […]

Municipal bonds (munis) are debt securities issued by states, municipalities, or counties to finance public projects. These can include infrastructure developments like roads, schools, and hospitals. Trading municipal bonds involves buying and selling these securities in various market environments – e.g., either underweighting them or overweighting them in a portfolio based on specific circumstances.   […]

These lazy portfolios offer a range of strategies for those seeking simplicity, diversification, and balanced risk and return. Each portfolio has its own unique approach to achieving these goals, catering to different preferences and risk tolerances. Portfolio allocations are often more toward the sphere of investing, but can also be used by traders seeking the […]

Volatility term structure trading involves strategies that take advantage of the differences in implied volatility across different maturities for options on the same underlying asset. The implied volatility term structure (IVTS) refers to the relationship between the implied volatilities of options with the same underlying asset but different expiration dates.   Key Takeaways – Volatility […]

Volatility targeting is a trading and portfolio construction strategy that tries to achieve a desired level of volatility by dynamically adjusting the allocation of assets. This approach helps in maintaining a consistent risk level, which can lead to more stable returns and better overall discipline and risk management. Many institutional traders set volatility targeting levels […]

Commodity Yield Enhancement (CYE) strategies are designed to improve the returns on commodity trades or investments beyond the typical spot price movements.  These strategies leverage various financial instruments and market mechanisms to better optimize returns and manage risks in commodity markets.   Key Takeaways – Commodity Yield Enhancement Strategic Roll Timing Roll futures contracts at […]

Sector beta arbitrage is a trading strategy that tries to exploit mispricings between different stocks or sectors in the stock market based on their risk levels. This strategy leverages the concept of “beta,” which measures the sensitivity of a sector or stock’s returns relative to the overall market. Sometimes the strategy means, more generally, the […]

Precious metals spreads involve trading the price differences between various precious metals, such as gold, silver, platinum, and palladium. Traders exploit these spreads to profit from relative price movements rather than the absolute price changes of individual metals.   Key Takeaways – Precious Metals Spreads Precious metals ratios reflect substitution potential between, e.g., gold and […]