110 lines
3.1 KiB
Plaintext
110 lines
3.1 KiB
Plaintext
Index
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Stock index hedging strategies (continued)
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hedging price-weighted index, 547,548
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how many shares to buy, 547-552
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institutional strategies, 556
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POT system of NYSE, 555-556
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profitability, 552-554
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trade execution, 554-556
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market baskets, 531-537
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dividends, inverse correlation of to premium
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value, 534-537
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execution risk, 560
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futures fair value, 533-534
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risk, 560-561
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tracking error, 538,561, 571-572
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"mini-index," creating, 566-574 (see also Stock index
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hedging strategies, index, simulating)
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program trading, 537-547
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adjusted volatility, 539
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arbitrage approach, 537
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hedging with index calls, 545-547
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hedging with index puts, 543-545
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hedging portfolios with index options, 541-543
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market risk, removing, 538
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portfolio hedge, 539-541
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tracking error, 538, 561, 571-572
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volatility versus Beta, 538-539
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summary, 577-578
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tracking error, trading, 57 4-577
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collateral requirements, 577
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Stock indices, 493-500
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Stock options:
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basic properties of, 1-35
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definitions, 3-35
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definition, 3-35
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Stock price and option price, relationship between,
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7-9
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Stock prices, distribution of, 783-811
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distribution, 789-795
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"big" picture, 790
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fat tails, 790-792, 810
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inflection points, 792-793
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normal, 780-795
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risk of too conservative estimate of stock price
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movement, 796
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summary, 796-797
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Elliott Wave theory, 796
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expected return, 809-810
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lognormal distribution, 783-789
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options, pricing of, 798
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probability of stock price movement, 798-809
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Brownian motion, 806
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calculation mechanisms, 803-805
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cumulative density function (CDF), 806
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delta, 805
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"ever" probability calculator, 805-806
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Monte Carlo analysis, 806, 807-809
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probability calculator, 798-799
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summary, 810-811
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volatility, prediction of, 799-803
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sigma, 783-784
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volatility buyer's rule, 787-789
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volatility, misconceptions about, 783-787
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standard deviations, 783-786
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what this means for option traders, 795-796
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Stock splits, symbols for, 27
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997
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Stock trading and futures trading, difference between,
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508,512
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Stop order, 33
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Stop-limit order, 33-34
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Straddle:
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buying, 282-288 (see also Put buying)
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equivalent stock position follow-up, 312-313
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follow-up action, 308-312
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"legging out," 310
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risk large, 308, 314
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rolling up/down, 310
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in volatility trading, 824, 825, 829
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sale of, 302-320
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covered, 302-305
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uncovered, 305-307
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selecting write, 307-308
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selling, LEAPS and, 402-403
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starting out with protection in place, 313-314
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strangle (combination) writing, 315-320
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credits, using, 320
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definition, 315
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deltas, 318-319
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excess trading, avoiding, 319-320
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margin requirements, 317-318
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Straddle calendar spread, 348-350 (see also Spreads
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combining calls and puts)
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Straddle/strangle buying and selling, effects on of
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implied volatility changes, 766-767
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Strangle, 281
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buying, 288-291
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definition, 315
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in volatility trading, 824, 825, 828-829
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strangle (combination) writing, 315-320 (see also
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Straddle)
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Strategy, best, 932-937
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investor as dominant force in determining strategy,
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938
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market attitude and equivalent positions, 932-934
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mathematical ranking, 936-937
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strategies to be avoided, 933
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summary, 937
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volatility trading, 932-933
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Strategy summary, 943-944 |