The use of derivatives in hedge funds has always been an appealing yet controversial topic of discussion ever since the collapse of LTCM was blamed on the extensive use of leverage (among other factors). And because of this reason, we felt that it would be worthy to consider hedge funds as part of the...
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The financial reform bill seeks to curb Wall Street’s taste for derivatives by moving most swap trading to regulated clearinghouses. Yet a provision quietly dropped from the legislation last week could cement big banks’ control over the very exchanges that are intended to make the capital markets safer. Under pressure from the financial industry,...
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Many investors are often curious what is an “appropriate” volatility benchmark. In finance, the best way for us to measure the relative value of volatility is to look at historical or realized volatility. The first step in creating a useful trading signal is to develop a volatility cone. A volatility cone samples the distribution...
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As if we need more confusion to the already-perplexing lexicon of the options world, we must also contend with LEAPS. The acronym, which stands for Long Term Equity Anticipation Security, is essentially just a long-winded way of referring to long-term options that are one to two years out. Not all optionable underlyings have LEAPS,...
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