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To review, the Sharpe ratio is a measurement that tells us the risk-adjusted performance of a portfolio or strategy.  It is calculated by subtracting the risk-free rate from the strategy returns and dividing that by the standard deviation of returns.  The idea is to determine whether absolute returns are due to som

The old maxim is that when major market movements occur, all betas go to one.  We decided to look at the beta for a few stocks during 2008 to determine whether and to what extent that maxim held true.

The reason we wanted to investigate the beta exhibited during 2008 - and especially during the fall crash - is that investors and traders us

We’ve mentioned before that our preference is to close out short option positions before the dynamics of expiration week have a chance to kick in.  In a nutshell, while it’s true that theta declines more quickly as expiration looms, tempting option shorts to hold

Commissions are a cost of doing business, and as such shouldn’t be ignored.  It’s worth the trouble to spend a few minutes checking that your commission structure matches with your trading style, and that you’re getting the best rates available.

So, option activity in Procter & Gamble (PG) has been extremely high for days now, first ahead of earnings, and now in advance of their merger with Folgers.  The stock is 16% off its recent lows, and has been unusually volatile over the past two months along with the rest of the universe.

We should buy stocks because the VIX is going to decline, according to a strategist at J.P. Morgan.  As reported in the Striking Price Daily:

Following up on our recent post about VIX futures, a reader asked:

"If you want to get short volatility, why not just sell some of those VIX futures here, or maybe a vertical spread of VIX options?  Why mess around with equity indexes at all?"

It’s been interesting to watch the VIX futures over the past few weeks.  While the action in SPX options has pushed the cash VIX up to fascinating extremes, the longer-dated VIX futures have been somewhat less responsive, as you’d expect.  Which is not to say that VIX futures have been unresponsive.

Bradley Kay at Morningstar would like to see an ETF that tracks the VIX:

Back during those halcyon days of early and mid-2008, when all anyone wanted to talk about was vix spikes, the indispensible counter-argument from some of us in the financial blogosphere was that arbitrary absolute VIX numbers are basically meaningless, and that relative context is the thing when it comes

Low trading volume has been the theme of the last few weeks of trading.  This is a historically a quiet time of year in the market. But, what was of interest was Thursday's strong rally on such low volume: except for the Nasdaq, the major indexes were up more than 1.5%.  So we wondered:

Historically, would there be any edge in shorting large rallies that occur on very low volume?

We defined a “large rally” as any day in which the underlying closes at least 1% higher than the previous day.  As for volume, we looked for days in which the volume is both below its 50-day moving average and is the lowest volume of the past 10 days.  We’re talking serious non-participation here.  We shorted the close of any qualifying day and bought back the position 4 days later.

There are plenty of ways to put on option trades that have a neutral outlook: straddles, strangles, condors, etc.  Whereas stock and futures traders are limited to whatever price action the market gives you, options let you take a view on implied volatility (vega), the passage of time (theta), and the rate of change of the rate of change of the option per unit move in the underlying (gamma).  Okay, that last one isn’t so obvious, but the idea is to enter various spreads that can profit from changes in the non-delta greeks, such that success doesn’t depend solely, or even primarily, on what happens directionally in the underlying.

The inverse relationship between oil prices and equity markets still seems intact: as crude has sold off over the past week, markets have lifted, and some analysts have even tried charting an hour-by-hour mapping of the correlation.  While we’re long-term bullish on oil (how could anyone not be?), we don’t anticipate an immediate or intense turn around in crude prices.  At

All you hear traders talk about these days is how they want to see the VIX spike before they proclaim a short term bottom is in the market.

Ultrashort ETFs have really gained in popularity and most of them (like SDS, DXD, QID) now have enough volume to make them decent trading vehicles.  The actual stock, that is.  The options are another story.