Quant Mashup - Highly Evolved Vol

The Efficient Market Hypothesis [Highly Evolved Vol]

(This is an excerpt from my upcoming book on positional option trading.) The traders’ concept of the Efficient Market Hypothesis (EMH) is, “making money is hard”. This isn’t wrong, but it is worth looking at the theory in more detail. Traders are trying to make money from the exceptions to(...)

The Siren of Statistics [Highly Evolved Vol]

A siren was a mythological being who lured sailors with their enchanting music to shipwreck on the rocky coasts of their island. Their songs were almost impossible to resist. But more generally a “siren” is a bad thing that we are attracted to, either physically or psychologically. For(...)

The Government Shutdown [Highly Evolved Vol]

Over the last ten years, a number of congress members have been elected on a fairly nihilistic platform, voting against practically any spending bill (unless it buys tanks). This is a good way to get elected but it makes it hard to govern. The government has to spend money. While the Republicans(...)

The Kelly Criterion and Option Trading [Highly Evolved Vol]

The Kelly criterion can be used to calculate the optimal size of a trade. Specifically, it gives the size that increases the trader's account at the fastest possible rate. It is possible that a given trader might not actually want this. She might want some sort of volatility or draw down(...)

Night Terrors [Highly Evolved Vol]

Following on from my recent posts about trading volatility over weekends, I’m now going to briefly look at trading options overnight. Option traders have always complained when they were too long options overnight, expecting to usually lose money on overnight longs. This doesn’t make sense in a(...)

Theta and Weekends Again [Highly Evolved Vol]

Last week we stated that market makers don't fully account for weekend decay in equity options. Today we show specific results. Christopher Jones and Joshua Shemesh studied this issue and presented the findings in a paper that they presented to the 2010 American Finance Association meeting.(...)