Beyond Stocks: The Surprising Volatility Returns of Oil and Gold

I’ve previously discussed the Volatility Risk Premium (VRP) and how it differs from the Equity Risk Premium (ERP). Probably the most interesting difference, from the perspective of the trader, is that the VRP may be somewhat amenable to timing – more than the ERP at any rate. In this article, I’ll use some of the …

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Trading the US Election – Profiting from “Known Unknowns”

You’ve probably noticed that there’s a US election on the horizon. This is an event of known uncertainty: a “known unknown” in the now immortal language of Donald Rumsfeld. In trading, we sometimes observe marginal pricing inefficiencies around these “known unknowns”. For example, ahead of  stock earnings announcements or significant economic or policy announcements, we tend …

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Book Review: Positional Option Trading by Euan Sinclair

This is a review of Positional Option Trading by Euan Sinclair.  Trading books set a low bar for the reviewer. 99% are full of facile feel-good advice (don’t fight the trend, always use a protective stop). The 1% that are useful tend to either be dry technical treatments (quants who don’t trade), or sporadically helpful …

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Why Aren’t Call Options More Expensive Than Put Options? (In This Toy Example)

call options

In the Robot Wealth Pro Community, we’ve started doing weekend “quant-teasers” where we discuss the solutions to quant problems. Here is a recent one… Why aren’t calls more expensive than puts for an asset which is more likely to go up than down? We have an asset trading at $100 for which the distribution of …

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Weekly Roundup 29 May – Crash Protection, Sloppy Regressions and Data Munging Skillz

Here’s a round-up of our new articles this week. They cover crash protection, sloppy, noisy regressions, and data-munging skills. Finding Options for Effective Crash Protection Large capital losses can be devastating to your trading account. A couple of weeks ago, we explained how you can use SPY put options to protect your portfolio against severe market …

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Weekly Roundup 22 May – Doubling Down in Losing Trades Like a Drunken Hedge Fund Manager

Here’s a round-up of our new articles this week. They cover options trading, digital signal processing, data munging and Kris’s luxurious moustache… Trading Insanity! Every new trader tries out a few insane trading ideas! In a new series on the blog, Kris explores three insane trading strategies that tempted him back when he didn’t know any …

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How to Hedge a Portfolio with Put Options

There are 2 good reasons to buy put options: because you think they are cheap because you want downside protection. In the latter case, you are looking to use the skewed payoff profile of the put option to protect a portfolio against large downside moves without capping your upside too much. The first requires a …

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Are SPX Options Expensive?

Options are non-linear financial products that allow you to do useful things that you can’t easily do with other financial instruments. Let me give a specific illustration of options being useful… The chart below shows the monthly cumulative % performance of our RW systematic trading portfolio since we started trading it in October 2018. The …

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