Exploiting Earnings Volatility introduces an innovative new framework for evaluating, optimizing, and trading option strategies to profit from earnings-related pricing anomalies. Leveraging his extensive background in option-pricing and decades of experience in investment management and trading,

FT tries to define smart beta: Smart beta is a rather elusive term in modern finance. It lacks a strict definition and is also sometimes known as advanced beta, alternative beta or strategy indices. It can be understood as an umbrella term for rules based investment strategies that do not use the

I felt myself a bit unsatisfied after my last post on Walsh–Hadamard Transform and Tests for Randomness of Financial Return-Series leaving you all with a slow version of Walsh–Hadamard Transform (WHT). Someone wise once said: in order to become a champion, you need to flight one round longer. So

This post is a continuation of the prior post. In this post we will look at the backtest results for dynamic exits of 52 days-to-expiration (DTE) Iron Condors (IC), with 16 delta short strikes, with different profit and loss exits as a percentage of the initial credit. Recall that these RUT ICs were

The High Yield Dividend Champion Portfolio is a publicly tracked stock portfolio on Scott’s Investments. Its goal is to capture quality high yield stocks with a history of raising dividends. The screening process for this portfolio starts with the “Dividend Champions” as compiled by DRIP

In our last article, we investigated the MACD Line feature of the MACD and the historical patterns over the past few years using three common indicator settings. In this article, we are going to continue that analysis by studying the MACD Histogram, a feature that was added to the MACD indicator in

The Alcoa Barometer $SPY

Most people think about where to get into and out of positions. Most traders know how important it is to follow their rules, and most traders are always working toward being more disciplined. These are important pieces of a successful investment strategy, and most traders work on these things. But

Hong Kong Surge $SPY

This paper documents that the path of credit spreads since a firm's last loan influences the level at which it can currently borrow. If spreads have moved in the firm's favor (i.e., declined), it is charged a higher interest rate than justified by current fundamentals, and if spreads have

Pairs trading is a well-acknowledged speculative investment strategy that is widely used in the financial markets, and distance method is the most commonly implemented pairs trading strategy by traders and hedge funds. However, this approach, which can be seen as a standard linear correlation

One of the challenges faced by investment strategists is to assess whether a strategy is continuing to perform as it should. This applies whether it is a new strategy that has been backtested and is now being traded in production, or a strategy that has been live for a while. Fig 6All strategies

Artificial intelligence, machine learning, data mining and big data seem to get thrown around in everything from business intelligence to financial services. Artificial intelligence is used where machine learning should be and machine learning is often confused with data mining. In this post Justin

Welcome back to Interviewing the Quants. This is the third interview in the series. Many of you might know our guest from his blog on simple objective options trading. It is called Theta Trend. His name is Dan. He's provided some information to give us some insight into who he is, what he does,

I am still working on the final part of my real GDP growth series. In the meantime, I have written this article about some of the popular stochastic processes used by quants. This article was written with the help of a fellow quant and friend, Wilson Mongwe. I recommend reading his more detailed

Following up on the 'Nuke Geometric Returns' post I tried sketch out possible equations for the variance of geometric returns. I got good looking numerical answers, but the formula looked very odd. Then spent a few hours searching for the answer with Google. Thankfully Gordon at Quant

This post will display my implementation of the Logical Invest Enhanced Bond Rotation strategy. This is a strategy that indeed does work, but is dependent on reinvesting dividends, as bonds pay coupons, which means bond ETFs do likewise. The strategy is fairly simple — using four separate fixed

Josh Payne and the folks at Quantopian ran some tests on the performance of the acquirer’s multiple and Joel Greenblatt’s Magic Formula. I have argued in Deep Value and Quantitative Value that the acquirer’s multiple (enterprise value / operating earnings) tends to outperform the better known

Sustainable uptrend in EM, or another false start? $EEM

In this post we will look at the backtest results for dynamic exits of 52 days-to-expiration (DTE) Iron Condors (IC), with 16 delta short strikes, with different profit and loss exits. This is a non-directional options trading strategy that seeks to profit from a market that stays within a range

Randomness. A magic that happens behind the scene. An incomprehensible little blackbox that does the job for us. Quants. Many use it every day without thinking, without considering how those beautifully uniformly distributed numbers are drawn?! Why so fast? Why so random? Is randomness a byproduct

Transports divergence major warning sign?

We investigate various methods to express a 10-Year Treasury Bond allocation. The primary issue with Treasury Bonds is their lack of tax-efficiency. T-bond income (and CPI adjustments in the case of TIPS) are taxed as ordinary income--ouch! A 2.5% yield is pretty bad, but a 1.25% after-tax yield

Long story short... yes, there appears to be a relationship between economic growth and stock market performance within the U.S. (and developed world), but that relationship holds only over longer periods of time and does not hold for all countries (less developed countries often "divert"

It seems that some people at Logical Invest have caught whiff of some of the work I did in replicating Harry Long’s ideas. First off, for the record, I’ve actually done some work with Harry Long in private, and the strategies we’ve worked on together are definitely better than the strategies

The employment report was released at 8:30am on Friday and the reaction in the futures was not good. ES sold down over 20 points in the next 45 minutes before closing for the day. As of Monday morning it has not bounced much. So it appears we are about to see a sizable gap lower.. Since inception of

My apologies for the delay in posting the end of month updates - travel plans made it difficult to post. However, this delay highlights the benefit of the spreadsheets provided on Scott’s Investments - the sheets auto update daily so you, the reader, is not dependent on my posts to deliver timely

This post is a continuation of the prior post. In this post we will look at the backtest results for dynamic exits of 52 days-to-expiration (DTE) Iron Condors (IC), with 12 delta short strikes, with different profit and loss exits as a percentage of the initial credit. Recall that these RUT ICs were

A Value or Momentum portfolio is selected each month, based on the highest previous 12 month return (R). Data are from Ken French’s library from 1950 to 2015. I use the large momentum portfolio and small value portfolio (the HML anomaly … Continue reading

Recently Discovered Research You Might Have Missed: Back test a set of trading rules from 1870 to 2010 (Zakamulin) A comparison of investor sentiment indicators (The Behavioral Quant) The Nonlinear Price Dynamics of U.S. Equity ETFs (Caginalp, DeSantis and Sayrak)

When I was a kid 'Chinese Torture' was known to be extremely subtle. For example, a victim would be tied up and a drop of water would be allowed to slowly drip on someone's forehead for days until they went insane. Terrifying. Of course, actual torture in Imperial China was subtley

In this post we will look at the backtest results for dynamic exits of 52 days-to-expiration (DTE) Iron Condors (IC), with 12 delta short strikes, with different profit and loss exits. This is a non-directional options trading strategy that seeks to profit from a market that stays within in a range

I just wanted to briefly share some initial impressions of the 2nd edition of Stephen Marsland's very hands on text, "Machine Learning, An Algorithmic Perspective." Having been a big fan of the first, I requested a review copy from Dr. Marsland, and with his help, the publishers were

March 2015: Trend Following UP +2.34% — YTD: +10.63% Last month was positive and allowed our index to break the double-digit barrier to close the first quarter with a strong performance. In a similar fashion to a typical trend following trade, the composite equity curve had a relatively big run-up

A friend of the blog was inspired by our Robust Asset Allocation discussion, and conducted some backtests using our proposed risk management framework: 50% simple moving average rule (MA) 50% time series momentum rule (TSMOM) For naming convenience, we call our 50/50 approach ROBUST. Our friend

Just a short note here as we head into the holiday weekend. I want to share a few updates and tell you about about some exciting new things that are coming very soon.2015-04-01_14-18-42 I will be launching a series of short publications soon–whitepaper and mini-book formats. The idea will be to be

Slowing US growth... $SPY

Introduction Last week we explored the "best-day-of-the-week" theory and found no significant evidence to suggest that there is an optimal day of the week to trade. This week I'm going to test the theory that there is an optimal time of month to trade, and as you shall soon learn,

The index registered a new yearly high last month, with a nice uptrend until mid-month (nearing +10% YTD), before settling back to a lower level. The year-to-date performance is still well in the black. Please check below for more details. Detailed Results The figures for the month are: March

Javascript is the future of financial analysis. Here's a quick tutorial about how to download data from Quandl and show it in the browser. I am using Chrome. Your mileage may vary with other browsers, not by much though. All the code is here. This first item on the agenda is to craft a Quandl

In the introduction to his 2015 book entitled The 3% Signal: The Investing Technique that Will Change Your Life, author Jason Kelly states: “Ideas count for nothing; opinions are distractions. The only thing that matters is the price of an investment and whether it’s below a level indicating a

With an involvement in trading since his early twenties, and a background in mathematics and computer programming, it was a natural progression that this weeks guest would adapt a completely algorithmic trading approach. My friends, I would like you to meet Ilan Azbel. Ilan joins us to discuss

One thing to be aware is that while the market is closed on Friday for Good Friday, the BLS will be releasing the employment report. This is only the 11th time since 1980 that this has happened. Below is a list of all previous instances along with their performance on Monday when the market was open

I am sure you have already heard of momentum but have you ever heard of dual momentum? Neither have I until I read a very interesting book by Gary Antonacci called Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk. About Gary Antonacci Gary Antonacci is an

Some of you may remember the old saying on the Street, “Buy Rosh Hashanah, Sell Yom Kippur.” Though it had a good record at one time, it stopped working in the middle of the last century. It still gets tossed around every autumn when the “high holidays” are on the minds of traders as many of

Each year, Forbes calculates the performance of columnist recommendations assuming: (1) equal initial investments in each stock pick when published; (2) 1% trading friction for each purchase; and, (3) matching benchmark investments in the S&P 500 Index for each pick with no trading friction.

Over the past 10+ years I've cultivated a laundry list of websites associated with financial economics. My primary focus has been identifying sources for new ideas that are creative, unique, and have application in the real-world. Interestingly enough, none of the sources I've identified

Recent articles that I found interesting and made me think. 99 Problems But A Backtest Ain’t One- “The first time one can actually realize how good (bad) his chosen backtesting solution is when the strategy is traded live. However I am always amazed how little some traders pay attention to how

Using a new daily dataset for all stocks traded on the New York Stock Exchange, we study the impact of information asymmetry during the liquidity freeze and market run of October 1907 - one of the most severe financial crises of the 20th century. We estimate that the run on the market increased

This post is a continuation of the prior post. In this post we will look at the backtest results for dynamic exits of 52 days-to-expiration (DTE) Iron Condors (IC), with 8 delta short strikes, with different profit and loss exits as a percentage of the initial credit. Recall that these RUT ICs were