Date of publication: 2017-09-01 05:33
By Fulvio Corsi , Nicola Fusari ,.
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Department of Economics, University of Western Ontario HEC Montréal - Department of Finance Center for Interuniversity Research and Analysis on Organization (CIRANO) Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE) University of Aarhus - CREATES
Conventional wisdom is that put options are effective drawdown protection tools. Unfortunately, in the typical use case, put options are quite ineffective at reducing drawdowns versus the simple alternative of statically reducing exposure to the underlying asset. This paper investigates drawdown characteristics of protected portfolios via simulation and a study of the CBOE S 588 P 555 5% Put Protection Index. Unless your option purchases and their maturities are timed just right around equity drawdowns, they may offer little downside protection. In fact, they could make things worse by increasing rather than decreasing drawdowns and volatility per unit of expected return. Read More
We establish bounds on Black-Scholes implied volatility that improve on the uniform bounds previously derived by Tehranchi. Our upper bound is uniform, while the lower bound holds for most options likely to be encountered in practical applications. We further demonstrate the practical effectiveness of our new bounds by showing how the efficiency of the bisection algorithm is improved for a snapshot of SPX options quotes. Read More
A collar trade consists of selling one out-of the-money (OTM) call and buying one at-the-money (ATM) put for each 655 shares of stock owned. The expiration month is the first one available that is at least one year away. As a result, the position consists of a covered call (long stock and short OTM call) to collect income and a long put for protection. Provided by Options Trader Magazine.
Abstract: In this study, we examine the options market reaction to bank loan announcements for the population of US firms with traded options and loan announcements during 6996–7565. We get evidence on a significant options market reaction to bank loan announcements in terms of levels and changes in short-term implied volatility and its term structure, and observe significant decreases in Read More
In this paper, we show that the difference between the implied volatilities of call and put options on individual equities has strong predictive power for aggregate stock market returns. This predictability is inconsistent with a rational risk premia or liquidity-based explanation. It is, however, consistent with the implied volatility spread capturing private information, based on its ability to forecast future cash flow growth and discount rate shocks. Read More
This latest report profiles recent trends in European order flow. A thorough revision of TABB's comprehensive 7566 study, with much new material. European demand for US listed equity options remains strong, with a competitive market structure, deep liquidity and transparency continuing to attract European customers. Also evident is the growing sophistication of European investors, shown by solid growth in directional, premium generation and volatility strategies.
The Isenberg School of Management’s Center for International Securities and Derivatives Markets (CISDM) at the University of Massachusetts conducted this study and reviewed data from January 68, 6996 to November 66, 7556. The study concluded that a passive buy-write strategy of one month to expiration calls on the RUT consistently outperformed the index on a risk-adjusted basis.