The almost zero difference between long and short
Dollars or euros are the same, regardless if you make or lose them with the market going up or down. But in minds of most people – even when we consciously try to avoid it – trading on long and short side still feels different.
Permanent bulls
Some people are [...]
In the previous article about long straddle option trades, we looked at them mainly from the perspective of holding a long straddle position till expiration and explored various scenarios for your P/L. Though the buy and hold approach and never looking at the position prior to expiration is one way to trade straddles, you will [...]
Read more: Long Straddle Delta: Don’t Just Wait till ExpirationConvergence trading hedge funds, or arbitrage hedge funds try to discover situations where two related securities are mispriced relative to one another. They buy the relatively underpriced security and sell the relatively overpriced one. Profit is made when the price relationship gets back into “normal.” Arbitrage funds typically use sophisticated computer models, as computers are [...]
Read more: Convergence Trading Hedge FundsAnother popular trading rule
There are many short little pieces of popular trading wisdom. Many of them have their origin in trend following – a trading style based on catching long trends and riding them to the very end.
One of these often quoted trading rules is “Cut your losses short and let your winners run.” It [...]
Why do we need to classify hedge funds into styles?
Classifying hedge fund trading styles into groups is good for:
Choosing the right funds to invest in. Some trading styles are entirely unsuitable for a particular investor’s risk and return objectives and [...]
Read more: Hedge Fund Trading Styles OverviewDelta of a portfolio of options
The main benefit of delta as a portfolio management tool is that it is additive across individual options – calls and puts, different strikes and different times to expiration. Of course, all options must be for the same underlying.
You can easily calculate the total delta of your position by summing [...]
Delta: the king of the Greeks
Delta, probably the best known of the option Greeks, measures an option’s directional exposure. Just by looking at delta, you can quickly tell whether an option or a portfolio of options will go up or down given a particular move in the underlying stock, and approximately by how much. This [...]
What delta means
Delta, the best known of the option Greeks, is a measure of directional exposure of an option. It is the first derivative of option’s market price with respect to the underlying’s price. Simply said, an option’s delta represents the dollar value by which the market price of the option changes when the underlying [...]
The common method: using closing prices
Most people calculate moving averages (or let their software calculate it) from the closing price of each bar. This has a valid reason on daily or weekly charts, because the price at which the market closes on a particular trading day or week has a big meaning.
Of course, like many [...]
What a moving average period means
The length of a moving average period, or simply moving average period, means how many bars are used for calculating the moving average. When you are selecting a moving average period length, you are deciding how far back to the history you want to look.
For example, a simple moving average [...]
What is a directional trade
In general, a directional trade is a trade in which you are betting on a particular direction (up or down) in the movement of price of a security. If you are right and the security goes in the direction you chose, you make a profit. If it goes the other way, [...]
