I want to take a dive into the most passionately debated issue of a correction in Canadian real estate and the impact on Canadian banks. The general consensus is that over the long-term home prices will continue to rise and the risks directly to the banks are limited as mortgage default risk predominantly sit with the...
This is a fairly consistent rule in listed options markets: As assets rise in value, option pricing tends to pull back on a relative basis. As markets push higher, investors are deemed to be less fearful and therefore the cost to insure a portfolio against a market drops. We see this rule routinely play out in the VIXC (the...
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....
Cenovus stirred up the Canadian oil industry back on March 29th with an announcement on the $17.7 billion-dollar purchase of ConocoPhillips’ Canadian oil sand assets. To say the deal was not well received is an understatement as the stock dropped over 10% on the announcement and continued to actively distribute lower. From...
Option pricing, or insurance, is a relative value product. For instance, a $300 annual premium for $1 million of life insurance coverage for a young, healthy individual is reasonable. However, that same $300 price tag to insure a 65 year-old smoker with high blood pressure is way too cheap. When it comes to life...
Reflecting on the last 9 months, we can decisively identify the global reflation trade as the primary driver of the equity rally. This was considerably accelerated by the Republican sweep in the U.S. elections driven by expectations of new growth driven by tax cuts and fiscal spending. During that roaring bull advance, it was...
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...
Gold has been on a tear recently. Not because of any real change in supply demand metrics. This is all about defensive positioning against a perceived devaluation of paper currency. In short gold bulls are playing the crisis insurance card… again! I am not about to tell you to buy gold. I’ve talked about it in the past but...
The last two months have dynamically changed the narrative toward the Canadian economy. Over those two months, the markets have substantially shifted, including: 15% rise in the Canadian Dollar from its $0.68 lows to its current levels around $0.78. 27% rise in oil prices from their lows below $30.00 to around $38.00 today. 16%...
Volatility represents the underlying stock price fluctuation, not the price trend. The degree of fluctuation can vary whether a stock’s price trend is bullish and advancing, bearish and declining, or remains in a steady range over time. Historical volatility can be calculated based on a stock’s actual past trading...