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Index
A
Acceleration, 60
Adjustment repair, 86
Alpha decay, 15–16
Anchoring, 19
Arbitrage counterparty risk, 178–179
Arbitrage pricing theory (APT), 63
ASPX option profits, taxation, 187
Asymmetric implied volatility skew, 191
ATM, 104, 106t, 123, 131t, 137
At-the-money covered call, delta level, 135
Autocorrelation, 73f, 91
Availability heuristic, 19
Average return, calculation, 24
B
Back-tested rules, performer sample, 23
Backwardation, 61, 62
Badly priced butterfly, returns (summary statistics), 98t
Badly priced condor, returns (summary statistics), 98t
Bankruptcy, risk (increase), 66
Bayesian model, usage, 30
Behavioral biases, inefficiency, 67–68
Behavioral finance, 16–21
Best, defining (possibility), 121
Beta, 67–68, 68t, 82, 196
246
BFLY index, 45, 46f
Biases, 18–20, 23, 30, 113
Bid-ask spreads (total cost component), 200
Bitcoin, 172–173, 172f
Black-Scholes-Merton (BSM) assumptions/equation/model, 2–4,
6, 108, 113, 115, 183, 192
Black-Scholes-Merton (BSM) PDE, 5, 116
Bonds, 49–50
Bonferroni's correction, usage, 23
Broken wing butterflies/condors, 99–100
Butterflies, 95–100, 96f, 98t
BXMD/BXM/BXY, 133, 134t
C
Calendar spread, 100–102
Calls, 55f, 129–136, 129f, 132f, 142
call spread, 130f, 131t, 142f, 143t
implied volatility, level (example), 140t
put-call parity/relationship, 95, 115, 116
strike call, 118f, 120f
Capital asset pricing model (CAPM), development, 63
Cash flows, taxation rate, 6
Catastrophe theory, 20
Chicago Board Options Exchange (CBOE), 16, 36, 45–46, 133, 134f
CNDR index, 45, 45f
Commissions (total cost component), 200
Commodities, 47–49, 48t, 49t
Condors, 95–100, 96f, 97f, 98t, 104t
Confidence, 61–62, 71–75, 80
Conservatism, 19, 30
247
Convergence strategy, 58
Copper, price (decrease), 175
Correlation effects, 99
Counterarguments, examination, 30
Covered calls, 131–137, 132f, 136f
Crowdedness, quantification, 58
Crowded, term (understanding), 58
Crowds/crowding, 36, 57–61
Cryptocurrencies, problems, 172
Currencies, 25, 50, 171–173
D
Daily hedging, usage, 94f, 94t
Data mining, 22, 23
Debt to equity (D/E) ratio, 63, 65
Decision price, 200
Delta, 5, 70–71, 93–95
delta/gamma P/L, 141
delta-hedged option returns, 75
performance, improvement, 136
Directional anomaly, 76–77
Directional forecast, problems, 91t
Directional options, 113, 127
Distribution function, usage, 152
Divergence strategy, 58
Diversifier, function, 101
Dollar premium, 106
Dow Jones 30, variance premia, 44
Dow Jones Industrial Average (DJIA), 26, 44f
Downside risk, 87, 140
248
Drawdown, 158–161, 159f
Drift, 69, 116
E
Earnings announcements, 68–74, 81–82
Earnings-induced reversals, 80–81
Earnings surprises, 31
Efficiency, conditions, 13
Employment announcement, impact, 50
Ensemblle predictions, 36–37
Equities, 39, 42–46, 50–51, 136f
EuroSTOXX 50, composition, 178
Event-driven trades, strengths, 32
Excess kurtosis, 71, 72
Expiration, selection, 109–111
Exponentially weighted moving average (EWMA) model, 22, 34–
37, 38t
F
Factor exposures/investing, 57, 51
Fairly priced butterfly, 96f, 97t
Fairly priced condor, 96f, 97t
Fairly priced short straddle, returns (summary statistics), 87t
Fairly priced short strangle, returns (summary statistics), 88t
Fama-French-Carhart, usage, 31
Fat-tailed results, 71, 72
Federal Reserve Open Market Committee (FOMC), 76–77
FED funds rate, stability, 29
Feedback, 58, 59
Fees (total cost component), 200
249
Fiat currency, risk, 171
Financial advisors, problems, 26
Financial anomalies, data mining (impact/traps), 23
Financial forecasting, principles, 29–30
Financial options, real options (distinctions), 188–189
First-order lagged terms, 34
Fixed commissions, absence, 15
Flat skew condor, results, 104t
Forecast, 35f, 37
Fractional Kelly ratio, impact, 159f
Fraud, impact, 173–174
Front-month implied volatility, 102t
Front-month options, straddle spread at expiry (P/L), 101f
Front-month VIX future/volatility, 40f, 101
Full Kelly, quarter Kelly (trading comparison), 169t
Fundamental analysis, 13, 21, 25–26
Fundamental factors, 63–68
Fundamentals, 136–137
Futures, 4, 40
G
Gamma, 6, 54
Gann angles, 22
GBM, 8, 85, 93, 163, 168f, 169f
Generalized autoregressive conditional heteroskedasticity
(GARCH), 2, 24, 33–36
Generalized Sharpe ratio (GSR), 122–127
Growth rate, 147–148, 150f, 151f, 159, 159f
H
Half-Kelly, betting, 158
250
Hedged option position, average PL, 7, 7f
Hedgers, insurance payment, 52
Hedging costs, presence/absence, 9t
Hedging strike, selection, 107–109
Historical data, usage, 85
Historical long-term average, 34–35
Historical returns, impact, 93t
Historical situations, examination, 29–30
Human nature, impact, 16–17
I
Implied correlation premium, 47
Implied skew, 92, 141