Tristan Yates

Interpret a Stagnant VIX As You Will

The VIX is a forecast of volatility, so this level means that the market believes there is a 66% chance that the price one month from now will be within 7.22% of today's price. (25/3.46=7.22). This forecast could be wrong - during the first part of 2002 implied volatility was much too low given the losses that option sellers were taking. Then it overcompensated and was too high in 2003. We have an article in Febuary's Futures & Options trader about how the best timing for covered call and similar strategies is actually a few months before the upturn because implied volatility is still high but all of the large losses have already been taken.

Fox Business Network Off To Weak Start

FBN doesn't have an audience because they haven't defined one. Who is the channel for exactly? For a business channel it seems like they would have thought a little more about customers and unique selling points. Put on a show about something new and interesting like IPOs in Asia or Carlos Slim's corporate empire or different kinds of REITs and I'll watch.

Can the iShares Spain ETF Continue to Rise?

Great article! I think Spain's boost is also due in part to its access to the booming Latin American market.

The S&P 500 SPDR ETF Approaches the $100 Billion Mark

I thought I bought a lot of calls last week... :-) Perhaps this index's market cap is fueled by derivative purchases. Options on this index are extremely liquid.

Understanding Contrarianism and Bubbles

I thought this article would be about China... The dollar can't be a bubble because it doesn't have the rapid recent appreciation and speculation that defines a bubble. The dollar might even be a value investment now, given the bearishness, who knows.

But for the bubble deflators, keep in mind that the NASDAQ did not just "pop" one day - it went through an extremely volatile two years where both longs and shorts, and option buyers and sellers were absolutely crushed because of the complete unpredictability. In 2000 and 2001, the NASDAQ was moving 10% up or down every month on average and if you picked the wrong entry point, no matter what your direction or strategy, you were broke by next quarter.

Tune Out The Hype Machine

Is this charted or uncharted territory? That's the trillion dollar question. I started my career as a mortgage-backed security portfolio analyst in 1991 and I have to say that this looks familiar in many ways with falling prices, rising delinquencies, and bank failures due to derivatives. We watched the DQ3Ratio climb up, recommended our clients set aside a reserve, and then the ratios came back down and they didn't need it. A few banks had gone under but the losses weren't as bad as expected and the loan portfolios were in better shape too. The economy slowed, some regional economies were hit hard like Texas, but the sky didn't fall by any means.

A World Market Cap Approach to Allocation

Good article. Well, the best thing about market cap as an asset allocation strategy is that it minimizes transaction costs and taxes, as it more or less rebalances itself as the asset prices change. That's pretty neat. The situations where you have a stock or sector or country that dominates the allocation, like China for example now, isn't an argument against market cap allocation but rather an argument for dollar cost averaging over long periods of time, because you could have bought China cheaply three years ago, and chances are you're buying something else cheaply today.

I Believe in ETFs. Do You?

You and Will McClatchy wrote almost the same article on the same topic. I'd say his was more informative, but yours was more fun to read. :-)

So where do you acquire your investing knowledge? I get mine from my MBA professors, published research papers, technical articles (not fluff), the Economist, some older books, and my own research. I've grown way beyond your average personal finance article in the newspaper, and any investor who wants to get serious will have to do the same, not least because explaining a difficult concept in 693 words is impossible.

One the other hand, I'm not going to call any investor who dollar cost averages into a Vanguard Index fund for twenty years a chump either. The chumps are the people who are selling covered calls on Gold futures or something like that - i.e. trying to mess with tools and capabilities that are way beyond them and taking huge risks by doing so.

Will it Take a Liquidity Crisis for Intel to Rationalize Capital Spending?

Intel's huge profits and cash hoard is only possible because they've continued to maintain technical leadership. It's a strategic imperative for the company. There's just no scenario in which they have profits but no CapX.

The Impact Of Trading Volume On ETF Price

This is a good article because it clears up a common misconception. But volume could be a factor in the bid/ask spreads, right?

The Buy/Write ETN as a Substitute for SPY -- Less Volatility, But Where's the Growth?

Interesting article. I think buy/write is a lot more popular in the flat to down markets. I remember reading some studies about how buy/write funds were able to outperform the index in 2001 and 2002, but then lagged in 2003 and later years. A buy-write fund is actually both long and short the index simultaneously and has some weird "delta-neutral" characteristics. You're never quite sure what its going to do when the index goes up or down.

Using Options on ETFs

Good article. Many people overlook LEAPs calls on ETFs. Also, if your call option is getting close to expiry and you want to hang on to it, you can roll it forward by selling that one and buying another one with a later expiry. The sale of the first option helps pay for the cost of second option and then you pay the difference.

The Case Against Leveraged ETFs

Thanks for the comment and questions. This is exactly why I publish.

msangelbates: It sounds like an interesting trading strategy, though I'm skeptical on the predictive power of SMA lines. The article is aimed more at people who are considering holding these at long term investments, as for example, Bill Donahue from the Street has suggested. Email me and we can talk more in-depth - I'm writing another article on momentum vs mean reversion and have some papers you may be interested in. [e-mail].

But as a trader, you likely have access to better index-linked products anyway, like index and ETF futures and options, which is what I personally use. In a low-volatility market I can leverage the index 5x+ times with a capped 20% downside risk using an in-the-money LEAP call. Why even consider a leveraged ETF then?

david: I used Yahoo adjusted-close prices, which include the effects of dividends. I think SSO keeps the dividends and uses them to pay interest costs, and that adds to the lag.

qftz: You may not be using dividend adjusted prices. On close 6/21, adjusted for dividends, SPY was 123.97 and SSO was 68.32. At yesterday's close, SPY was 152.42 and SSO was 97.67. Gain for SPY is +22.9%, SSO is +43.0%. See the 6.1% lag in the nine month period? (43.0 / (2 x 22.9)). If our fund really doubled the return, we would have expected to make +45.8%.

Note that this math differs from the article because we have some additional days, and I did the straight gain here rather than taking the individual daily SPY prices, doubling them, and comparing them to SSO.

What This Bull Market Is Missing

Bubble in utilities maybe? Great article. Fundamental valuations matter for indexes just as much as they do for stocks.

High Beta Stocks: Do They Offer Higher Returns?

First poster: If you already know everything, why do you read articles? Anyway... According to Fama & French, there isn't a lot of evidence that high beta stocks offer much additional long-term return. The value and size factors are larger contributors than beta.

However, there's clearly some kind of feedback loop operating with high-beta stocks in which their volatility helps contribute to a sharp upward move, which then attracts a flood of new money, pushing the stock even higher. But its a short-term phenomenon that can turn on investors quickly.

Good studies to read: Jegadeesh & Titman (1993), Debondt and Thaler (1985), Fama & French (1992).