Protection
Writing covered calls as a hedge against a drop in the shares of Intact Financial Corporation
Martin Noël
As the following graph shows, the share price of Intact Financial Corporation (IFC) seems to be on a downward trend as it has just broken through its previous trough at around $104. Its stochastic oscillator (%K) and relative strength index (RSI) are also trending downward. Since this bearish trend could take IFC down as far as...
Implementation of a collar to protect profits accumulated in Royal Bank of Canada shares
Martin Noël
As you can see in the following graph, the price of shares in Royal Bank of Canada (RY), much like the financial sector in general, have shot up over 10% in just six weeks. Even though it is always risky to expect a trend to reverse, such growth cannot continue indefinitely. However, considering that RY just closed at $100.07...
Hedging Canadian Bank Risk with Debit Spreads
Patrick Ceresna
The recent hawkish shift and rate hike by the Bank of Canada has ushered in a resounding 10% rise in the Canadian dollar in a few short months. This has not only put stress broadly on Canadian equities, but it has instilled concerns about the tightening of credit conditions on an already over indebted Canadian consumer....
Options Brief- Week of July 31st
Montréal Exchange
The rallying markets have led to a large pool of investors accumulating unrealized gains on their portfolio. One may believe that now is a good time to cash in a profit, but investors may wish to hold on to their stocks just a little longer if they are receiving a healthy dividend payment from these holdings or wish to avoid...
Delta: Assessing Probabilities Based on the Break-even price
Martin Noël
As we saw in an earlier article, delta measures how much an option’s price moves in relation to a change in the price of the underlying asset. Delta is a variable from the Black-Scholes option pricing model, and it is also used in the industry as an approximation of the probability that the option will be in-the-money at...
Purchasing Put Options or Selling Call Options to Protect Oneself? (Third and Last Part)
Martin Noël
In the two previous articles, we compared purchasing put options as a protective strategy with selling covered call options. The first article used options with monthly expirations, and the second article used options expiring after our period of analysis, from April 17, 2015 to January 22, 2016. In both cases, the analysis led...
Purchasing put options or selling call options to protect oneself? (Part 2)
Martin Noël
In the last article, we compared purchasing put options with selling call options. We reached the conclusion that, in the absence of a known target price and timeframe, it is better to use strategies that take advantage of the decaying time value of options, such as selling call options, as protection against a decline in the...
Purchasing put options or selling call options to protect oneself?
Martin Noël
Is it better to purchase put options or to sell call options for protection against loss? Many investors ask this question but, in this as in many areas, there is no single right answer. As we have seen in earlier articles, purchasing options has one major disadvantage: the erosion of the time value that must be counterbalanced...
Is the Extreme Bullish Speculation in Oil a Warning?
Patrick Ceresna
The OPEC agreement to cut production back in late 2016 ushered in a further wave of enthusiasm that pushed oil and the energy sector higher, with the belief that the oil bear market was over and long gone. Coupled with the Trump reflation trade enthusiasm, we have witnessed a very strong finish in 2016. The price of WTI oil...
Fading the Trump Hysteria
Patrick Ceresna
The stock markets are first and foremost a behavioral exercise. Investors are always trying to price in the future – 6 to 9 months in advance. To put that statement into perspective, one must recognize that the market is therefore driven by perceptions and assumptions more than it is about realized certainties. That...
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