Volatility
Will Volatility Revert to the Mean?
Hans Albrecht
A crucial foundation for understanding how option volatility works is the concept of ‘mean reversion’. For a period, stocks can go up and stay up, and they can conversely go down and stay down. But option pricing will generally have trouble staying high or low for an extended length of time. So why do prices eventually move...
Going Long Volatility
Alan Grigoletto
No on can accurately predict whether the worst is over or just pausing before stocks make another dramatic move lower. The Long Straddle can be used to take advantage in either outcome. The Long Straddle is composed of a long call option and a long put option. Both options are at the closest At-The-Money-strike (ATM) of the...
Playing the US Election
Richard Croft
The US equity markets are re-setting some old records. At the close of trading last week, the S&P 500 composite index and the Dow Jones Industrial Average did something had declined for nine straight sessions. The last time we saw this measure of consistent bearishness was in December 1980 just before Ronald Reagan took...
Is Volatility Gone… or Just Forgotten?
Richard Croft
In an environment where we see sluggish growth among industrialized countries, global deflation, weak oil prices, political indecision in the US and negative interest rates, one could argue we are living in the worst of times. Add to that mix company specific events like missed earnings and questionable government regulation...
The Doubling Strategy
Richard Croft
This week, rather than looking at short term trading opportunities, we will examine a longer term strategy that is not dependent on a directional bet for the underlying stock. What it comes down to is positioning. Is this a stock you would be willing to hold longer term, what role will it play in your portfolio (i.e. risk...
Gold versus Gold Stocks
Richard Croft
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...
Betting on A Volatile Finish to the Year
Patrick Ceresna
There has been no shortage of volatility in the Canadian stock markets over that last year. It was April of 2015 that saw the S&P/TSX60 top at the 905.00 level and usher in a 9-month bear market decline that wiped out 25% of the value of the TSX down to the 680.00 level in January 2016. Over the last 4 months, the...
Gold Covered Straddles
Richard Croft
I talked about gold… reluctantly, back in February. I also read with interest comments from Patrick Ceresna who, also in February, penned a two-part thesis on why gold should move higher. And Patrick provided some strategies for investors to take advantage of his bull case which, I might add, have paid off handsomely. I also...
Evaluating Earnings Variability
Richard Croft
We often hear about the expected movement in a stocks’ share price based on an upcoming earnings release. Calculated as an implied trading range by reverse engineering the option pricing formula. Traders typically use some version of the Black Scholes option pricing model to calculate the theoretical fair value for a call and...
Tales from a Reluctant Gold Bull
Richard Croft
In an effort to provide full disclosure I am not now nor have I ever been a raging gold bull. I am not convinced that gold provides crisis insurance or any kind of hedge against economic Armageddon. Personally if the global economy collapses under the weight of a currency crisis (note: the collapse of paper currency is the...
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