Have you ever been in the fortunate position of holding a stock that had rallied a long way, but you were concerned it had gone too far too fast, yet you did not want to sell your position? Or, have you ever thought that the market would go sideways for a while, and you did not expect your stocks to rally? Maybe you have seen...
The past few months have been challenging for investors. During the first month of the coronavirus crisis, the stock market fell from record highs with unprecedented speed. Meanwhile, the subsequent rally has been just as befuddling to many. Canada’s most liquid stock index ETF, the XIU, plunged from $27 to $17 (a loss of...
In times of market uncertainty like we are seeing now, many investors turn to options for the protection they can provide. Although the markets have recouped a good portion of their losses of the past few months, we cannot rule out another plunge that could test the depths of the recent decline. The high volatility in today’s...
Recently the Royal Bank of Canada lost its title as our country’s most valuable company in terms of market capitalization. For two brief weeks, Shopify sat at the top of the heap. Chart 1: Royal Bank vs. Shopify May 31, 2020 Source: Bloomberg SHOP’s run has been a sight to behold. Chart 2: Shopify...
One of the best features of options is that they can facilitate a wide variety of strategies. Are you bullish on a stock but don’t expect a rise in volatility? Then a call or put spread might be for you. Do you expect a big move in an ETF, but don’t know which direction is more likely? Then a straddle may be the...
As an investor, the first thing you need to know is how to choose which securities to buy. The second is when to sell them. That’s pretty easy, right? In this article, you will learn how to trade your first option. As you will see, you do not need to be an expert to start trading options. You just need to be familiar with...
In a bear market, the lows of the first market downturn are often retested following a rally like the one we have just seen. This article examines how put options can be used to maximize the return on a bearish projection. As can be seen in the following chart, the unit price of the iShares S&P/TSX Capped Financials Index...
Professional options traders are really good at dividing and multiplying by 16. That seems like a weird skill, but it is a crucially important one for anyone who wants to fully understand the terminology used in options markets. No matter how you utilize options, the “Rule of 16” is critical for analyzing volatility,...
The coronavirus crisis has caused massive sell-offs in global equity markets throughout the world. Canada has not been immune, and our benchmark large-cap S&P TSX 60 Index has lost over 36% from its February high. CHART 1 – S&P/TSX60 Source: Bloomberg A move of this magnitude from new highs to a...
In our last article we discussed how to reduce the risk associated with the time-value decay of options in a directional position. Now we will take advantage of the market meltdown to discuss the implied volatility in the price of an option, how it reflects the degree of market uncertainty over future price movements in the...