If you are short call options in a stock or an Exchange Traded Product (ETP) like SPY or IWM you need to be aware of ex-dividend dates. If your calls are in the money, even barely, your options may be assigned right before the security goes ex-dividend—and then you may have a problem. For example, let’s say you hold a credit call spread position: short …
Volatility based Exchange Traded Funds and Notes (ETF / ETN) have only been on the market for a few years (see volatility tickers for the full list of USA based funds). The oldest one, Barclays’ VXX only started trading in late January 2009. Because of their relative youth, we don’t have actual trade data on how they would have performed through critical periods—for example, …
Years ago I was watching the action around an Atlantic City roulette table when I noticed a man taking careful notes. When I asked what he was doing he said he was looking for long consecutive strings of red or black. If the run got long enough he was going to bet that the ball on the next spin would land on the opposite color …
I’m seeing a lot of articles (e.g., here) warning about a possible short squeeze in volatility. At the risk of being a curmudgeon, it appears to me that people don’t know what a short squeeze is. Sure, if you’re short something that starts going up rapidly (e.g., Achman with Herbalife), life is not good. There’s a positive feedback loop when people closing out their short positions have …
The Sharpe Ratio The Sharpe Ratio is one of the more popular ways to evaluate an investment for risk as well as for returns. Assessing the risk of an investment is not easy. The Sharpe Ratio won’t protect you if the provider is dishonest (e.g., Bernie Madoff) or if historical patterns change (e.g., default rates on AAA-rated mortgage-backed securities). However the ratio does factor-in historic …
