Options
Read the previous parts of this 101 series on options: Options have value because the future is uncertain. One thing that is known and always unchanging, however, is the value of a given option contract at expiry. This is the most fundamental thing about an option. Value of a Call Option at Expiration A call
Options
In the previous article, we discussed what makes an option valuable. At its core, an option is about choice—the choice to buy or sell an asset at a specific price within a set timeframe. In this article, we’ll explore exactly what this means. An option gives the holder the right, but not the obligation, to
OptionsThink like a trader
Financial options contracts are really just options. That is, they give us a choice or an option to do something. We’ll go through a simple example of why options are valuable. Let’s say I offer you the option to use my truck. What might the value of this option be to you? Is it Intrinsically Valuable? Maybe you need
Data analysisR
Back in May 2020, in the eye of the Covid storm, we looked at overnight vs intraday returns in US equities. Intuitively, we’d probably expect to see higher average returns overnight when the market is closed – because it’s much more difficult to hedge and manage our exposures when the cash market is closed, so
Think like a trader
Industry veterans sometimes remark that successful gamblers tend to make good traders, and engineers tend to make lousy traders. This is a gross generalisation, of course, but one reason is that trading, at the most fundamental level, is a game of pricing uncertain outcomes. This requires probabilistic thinking, and engineers tend to be trained to
Think like a trader
The first thing you need as a trader is a clear edge. What do I mean by “edge?” Edge comes from a market inefficiency that means you can buy cheap and sell rich on average over the long run. Said differently, edge is positive expected value. Expected value is the return you expect to realise
OptionsThink like a trader
If you trade liquid stocks or futures contracts, the first thing you will notice about equity options trading is that the contracts are illiquid and the bid/ask spread is wide. This sucks, but it makes perfect sense. There is only one AAPL stock to trade, but there are a ton of different options contracts trading
DataRTime series modelling
Last week, we looked at simple data analysis techniques to test for persistence. But we only looked at a feature that is measured over a single day – the absolute range. Such a feature makes it easy to test persistence because you don’t have the problem of overlapping data. Each data point is entirely self-contained
Data analysis
An assumption we often make in trading research is that the future will be at least a little like the past. I see a lot of beginners making this assumption implicitly without recognising that they’re making it or thinking about whether it’s reasonable to do so. That’s a mistake. If you are making this assumption,
PythonQuant tradingTrading strategies
Here’s a thing that I suspect will make money, but that I haven’t yet tested (for reasons that I will explain shortly): Every day, at the start of the trading day, get the SPX straddle price and convert it to an expected SPX price move. Then at the end of the trading day, take the
Tools of the tradeTrading infrastructure
Here at Robot Wealth, we trade with Interactive Brokers (IB) primarily because they offer access to global markets at a reasonable price. In recent times, IB has put some time and effort into upping its tech game, including development of an API for interacting with its desktop trading applications. An application that interacts with IB’s
Quant tradingR
Navigating Tradeoffs with Convex Optimisation This is the final article in our recent stat arb series. The previous articles are linked below: A short take on stat arb trading in the real world A general approach for exploiting stat arb alphas Ideas for crypto stat arb features Quantifying and combining crypto alphas A simple and
Think like a trader
Think like a trader
Think like a trader
CryptoData analysisThink like a trader
Think like a trader