Research on stock options
Research for Options
More specifically, on individual names that are […]. Using option activity as an indicator of impending price moves is difficult, subjective, and unreliable. That being said, it can help confirm other indicators and increase the probability of a profitable trade. Indeed, there have been many situations in which activity in the options pits accurately predicts or presages an impending price move.
There are […]. I thought this would be a good time to review some of the common mistakes traders make when using options. As shoppers have become increasingly savvy in finding online bargains and discounts, we see similar behavior spilling into other aspects of their lives. This includes investment advice and stocks they seek. While it should never be the driver of investment decisions, one needs to always keep an eye on tax implications as they can have a significant impact on the final total returns.
Typically, at […]. Market volatility is starting to tick back up as macro headlines ranging from inverted yield curve to drones striking Saudi oil complexes to impeachment to failed IPOs have ratcheted up uncertainty and nervousness. And now we are about to enter earnings season which not only will cause big moves in the individual names but could […]. Market volatility has contracted back down to historically low levels with the VIX, which acts as the benchmark measure, sitting just above week low at the pre-teen level of After a steep decline and rapid rebound, the stock market seems to be settling in.
One of the most popular options strategies is the covered call, or buy-write, in which one owns underlying stock and sells a call. Many investors and money managers consider it a very conservative approach and employ it in their retirement accounts. But suggest selling a put, and […].
Investors that have the goal of generating income from their portfolio generally have two methods at their disposal to do so. Alternatively, investors […]. Featured Article.
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No, very large selloffs often come […] Continue Reading. Most of downtown, including the exchanges, were closed for three […] Continue Reading. On the other hand, many other economic indicators are showing a […] Continue Reading. One of the best, and most popular approaches, especially among investors that […] Continue Reading.
So […] Continue Reading. Understanding A Covered Call Strategy The other day, I wrote about how people are piling into funds, then employ option premium-selling strategies, particularly covered calls or buy-writes. The covered call strategy is one of the most popular options strategies especially among investors that […] Continue Reading.
However, looking at the numbers, you may be amazed to see the […] Continue Reading. Options Trading Strategies 3 Stocks To Buy Following Great Earnings These stocks should keep winning after their impressive reports For many companies, nothing is more important than the quarterly earnings report. So today, […] Continue Reading. Nothing ignites volatility quite like an earnings announcement, and these […] Continue Reading. While the volatility can be […] Continue Reading.
Here are a few […] Continue Reading. It certainly seemed like January of was […] Continue Reading. There are certainly mechanical reasons for the […] Continue Reading. Low periods of volatility will inevitably be followed […] Continue Reading.
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Even in […] Continue Reading. Options Trading Using Options To Protect Gains While Maintaining Upside Potential The stock market is hitting all-time highs and investors are torn between the possibility of an economic downturn, or entering a new leg of the bull market. Some of this behavior might be deemed as a reckless […] Continue Reading. More specifically, on individual names that are […] Continue Reading. There are […] Continue Reading. The 6 Rookie Mistakes Options Traders Should Avoid I thought this would be a good time to review some of the common mistakes traders make when using options.
Typically, at […] Continue Reading. And now we are about to enter earnings season which not only will cause big moves in the individual names but could […] Continue Reading. The Options Strategy That You Need To Know One of the most popular options strategies is the covered call, or buy-write, in which one owns underlying stock and sells a call. But suggest selling a put, and […] Continue Reading. Alternatively, investors […] Continue Reading. Free Report.
All rights reserved. We investigate how information choices impact equity returns and risk. Building upon the theory of Van Nieuwerburgh and Veldkamp , we estimate a learning index that reflects the expected benefits of learning about an asset. High learning index stocks have 6. Long run patterns in returns and volatilities, other measures of information flow, and the information environment surrounding earnings announcements confirm our interpretation of the learning index. The investor overconfidence theory predicts a direct relationship between market-wide turnover and lagged market return.
Whereas previous research has examined this prediction in the equity market, we focus on trading in the options market.
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Controlling for stock market cross-sectional volatility, stock idiosyncratic risk, and option market volatility, we find that option trading turnover is positively related to past stock market return. In addition, call option turnover and call to put ratio are also positively associated with the past stock market return. We examine the effects of corporate ownership by exchange traded funds ETFs on corporate cash holdings. Using a panel regression, we show that firms increase their cash holdings to hedge against higher anticipated stock risks induced by ETFs. To establish a causality interpretation, we use the exogenous changes to membership in the Russell index as an instrument for ETF ownership.
We further show that shareholders place a higher value on additional cash held by firms with higher ETF ownership and these findings are more pronounced in financially constrained firms and good governance firms. Minimum volatility strategies are having a scorching run in These figures may come across as surprising; min vol is typically pitched as safety trade with better downside protection than the market, but less upside potential. Is minimum volatility purely a defensive portfolio solution? In this paper, we document and explain the distinct behaviors of U.
DVP, the compensation for bearing downside variance risk, is positive, highly correlated with the total variance premium, and countercyclical, whereas UVP is, on average, borderline positive and procyclical with large negative spikes around episodes of market turmoil.
We then provide robust evidence that decomposing VP into its downside and upside components significantly improves domestic and international stock return predictability. Currencies highly exposed to this factor offer a low currency risk premium because they appreciate when US tail risk increases. In a reduced-form model, we show that country-specific tail risk factors are priced in the cross section of currency returns only if they contain a global risk component.
This article takes a deeper look at the drivers of the momentum factor. A traditional momentum strategy involves buying winners and selling losers based on the past 12 months returns. This strategy can be amplified by selecting stocks within the Winner-minus-Loser portfolio that have high implied idiosyncratic volatility IVOL , extracted from option prices.
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The short portfolio of high IVOL loser stocks generates significant underperformance, due these stocks being overpriced by investors for their lottery-like payoffs. This study examines the effects of political uncertainty around US presidential elections on firm risk, expected return, trading activity, and dispersion of investor beliefs. Splitting stocks into groups with and without options trading, we find that only the aggregate short interest index constructed by the stocks without options trading predicts market returns in both in-sample and out-of-sample tests.
The return predictability is up to six months and does not revert. Similarly, when splitting stocks into groups based on short selling risks, we find only the aggregate option implied volatility spread constructed by the stocks with higher short selling risks predicts market returns. The aggregate implied cost of capital ICC from analyst estimates finds a variety of applications in finance and is documented to predict the equity premium.
Yet, the construction of the analyst-based ICC is data intensive and imposes restrictions on the employed analyst estimates.
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We suggest a new way to obtain a market-wide ICC using implied information from index options. We show that the resulting ICC predicts the equity premium in- and out-of-sample. We show that monetary policy announcements require a significant risk compensation in the cross-section of equity returns. Empirically, we use the expected reduction in implied volatility after FOMC announcements to measure the sensitivity of stock returns with respect to monetary policy announcements and find a significant monetary policy announcement premium. We develop a model of macroeconomic announcements to account for the cross-section of the monetary policy announcement premium in equity returns.
This paper analyzes the risk-return relation of different variance components in the cross-section of option and stock returns. Using option portfolios that have a constant exposure to either jump or diffusive risk, I decompose variance risk into four components: market volatility risk, idiosyncratic volatility risk, market jump risk, and idiosyncratic jump risk. Investors can synthetically replicate the return profile of optionable stocks using options for a fraction of the cost of holding the underlying securities, which makes diversification more cost-efficient.