45

A great deal of analysis on this question relies on misunderstandings of the market or noticing trends that happened at the same time but were not caused by each other. Without knowing your view, I'll just give the basic idea. The amount of active management is self-correcting. The reason people have moved out of actively managed funds is that the funds ...


18

EDIT: It was System Disruption or Malfunctions August 24, 2015 2:12 PM EDT Pursuant to Rule 11890(b) NASDAQ, on its own motion, in conjunction with BATS, and FINRA has determined to cancel all trades in security Blackrock Capital Investment. (Nasdaq: BKCC) at or below $5.86 that were executed in NASDAQ between 09:38:00 and 09:46:00 ET. This ...


11

The argument you are making here is similar to the problem I have with the stronger forms of the efficient market hypothesis. That is if the market already has incorporated all of the information about the correct prices, then there's no reason to question any prices and then the prices never change. However, the mechanism through which the market ...


10

Options that are not worth exercising just expire. Options that are worth exercising are typically exercised automatically as they expire, resulting in a transfer of stock between the entity that issued the option and the entity that holds it. OCC options automatically exercise when they expire if the value of the option exceeds the transaction cost for the ...


10

As more actively managed funds are driven out of the market, the pricing of individual stocks should become less rational. I.e. more stocks will become underpriced relative to their peers. As stock prices become less rational, the reward for active investing will increase, since it will become easier to "pick a winner". Eventually, the market will reach a ...


9

First lets understand what convexity means: Convexity - convexity refers to non-linearities in a financial model. In other words, if the price of an underlying variable changes, the price of an output does not change linearly, but depends on the second derivative (or, loosely speaking, higher-order terms) of the modeling function. Geometrically, ...


8

As you know, the market is in turmoil today. At this moment, 11:45 am, the S&P is down 2.3%, 45 points. But, premarket, it was down 100 points. Now, premarket, I heard Jim Cramer say, "today is not the day to use market orders." Yes, on Mad Money, he seems a bit eccentric, but he does offer some wise advice at times. In my opinion, your stock had ...


8

In an attempt to express this complicated fact in lay terms I shall focus exclusively on the most influential factor effecting the seemingly bizarre outcome you have noted, where the price chart of VIX ETFs indicates upwards of a 99% decrease since inception. The VIX index is a cash/spot index, but it is not tradeable as an index. The VIX only trades as ...


8

Although it is impossible to predict the next stock market crash, what are some signs or measures that indicate the economy is unstable? These questions are really two sides of the same coin. As such, there's really no way to tell, at least not with any amount of accuracy that would allow you time the market. Instead, follow the advice of William ...


7

Yes, in my humble opinion, it can be "safe" to assume that — but not in the sense that your assumption is necessarily or likely correct. Rather, it can be "safe" in the respect that assuming the worst — even if wrong! — could save you from a likely painful and unsuccessful speculation in the highly volatile stock of a tiny company with no ...


7

Forex markets are closed on weekends, so the prices are stale.


6

Understanding the BS equation is not needed. What is needed is an understanding of the bell curve. You seem to understand volatility. 68% of the time an event will fall inside one standard deviation. 16% of the time it will be higher, 16%, lower. Now, if my $100 stock has a STD of $10, there's a 16% chance it will trade above $110. But if the STD is $5, ...


6

I agree that high volatility just means the underlying stock price fluctuates more, and it does not imply if the stock is going up or down. But a high volatility in the price of an underlying also means that there is a higher chance that the underlying price could reach extreme prices (albeit in either direction). However, if you purchased a call option ...


6

This is basically what financial advisers have been saying for years...that you should invest in higher risk securities when you are young and lower risk securities when you get older. However, despite the fact that this is taken as truth by so many financial professionals, financial economists have been unable to formulate a coherent theory that supports ...


6

private investors that don't have the time or expertise for active investment. This may be known as every private investor. An index fund ensures average returns. The bulk of active trading is done by private institutions with bucketloads of experts studying the markets and AI scraping every bit of data it can get (from the news, stock market, the weather ...


6

Beta is the measure of volatility and typically available on most stock and often mutual funds information pages. For a full explanation of Beta The chart for FB on yahoo finance:


5

For the sake of readers not familiar with these instruments, let's first consider some elementary background information. The CBOE VIX index is a spot index which is not tradeable. Gaining exposure to the spot VIX is only achievable by trading the CBOE VIX futures contracts (or products based on these futures such as the XIV). The XIV ETN is an exchange ...


5

There are a few different "kinds" of implied volatility. They are all based on the IVs obtained from the option pricing model you use. (1) Basically, given a few different values (current stock price, time until expiration, right of option, exercise style, strike of the option, interest rates, dividends, etc), you can obtain the IV for a given option price. ...


5

US Dollar Index consists of: Euro (EUR), 57.6% weight Japanese yen (JPY), 13.6% weight Pound sterling (GBP), 11.9% weight Canadian dollar (CAD), 9.1% weight Swedish krona (SEK), 4.2% weight Swiss franc (CHF) 3.6% weight


5

To calculate it yourself you need to calculate the standard deviation (or variance but that is just the standard deviation squared) of the returns. Unfortunately the returns on stocks are distributed log-normally rather than normally but that isn't a problem as you can simply calculate it by log(p_t)-log(p_t-1) where p_t is the price for the current period ...


5

The sort of "hedging" you have heard about on business TV simply doesn't apply to such bizarre/thin/unusual markets; and it only applies when large wholesale amounts of the item in question is in play. the concept is totally irrelevant to your situation. To "eliminate the risk", trivially sell to Dollars or Euros. One click.


4

I looked at data from Sept 2010 to present: SPY (the S&P ETF) Standard deviation over this time - 1.21 MSFT - 1.40 AAPL - 1.65 Standard deviation is what shows the spread shape of returns over time, and it meanS that about 2/3 of the time, AAPL return was within +/- 1.65 higher/lower than the daily average return which was .21 %. Not sure where to go ...


4

It is usually the case that when the S&P 500 index (SPX) goes up, the VIX goes down, and when the SPX goes down, the VIX goes up. This is because the VIX is a measure of fear the market. When the market goes up, there is usually less fear, and when the market goes down, there is usually more fear. But the SPX and VIX do not always have an inverse ...


4

Large-scale price range of a stock isn't directly meaningful; that reflects how many shares exist, not just how desirable they are. A stock split, for example, doubles the number of shares everyone holds while cutting the value of each share in half; that's meaningless except that it makes the shares a bit easier to trade in. Change in price is more ...


4

Firstly "Most option traders don't want to actually buy or sell the underlying stock." THIS IS COMPLETELY UTTERLY FALSE Perhaps the problem is that you are only familiar with the BUY side of options trading. On the sell side of options trading, an options desk engages in DELTA HEDGING. When we sell an option to a client. We will also buy an appropriate ...


4

The easiest way to deal with risks for individual stocks is to diversify. I do most of my investing in broad market index funds, particularly the S&P 500. I don't generally hold individual stocks long, but I do buy options when I think there are price moves that aren't supported by the fundamentals of a stock. All of this riskier short-term investing ...


4

Here is a minimal example based on 16 months of returns. The calculation can be found in the textbook Computational Financial Mathematics using Mathematica, page 54. For daily returns adjust the times variable accordingly. The curve plotted above is the mean value curve y0 e^(a t) Here are the mathematical details, particularly the formulation of σ.


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