Uncle Bill

Notes on the Defense Industry and Stocks

This is just advertising for your company's product. No alpha here.

Options Trader: Plays on Dow Components

Writing LEAP puts? About 2/3 of option premium is expected to waste away during the last six weeks of an option's life. By selling so far away, you never get the advantage of that premium erosion. Your gain is limited to the amount of the put you've sold, while your loss is limited only by the price of the stock. You're essentially betting on the direction of the stock, and you've capped your upside gain in order to invest more money in the strategy than if you just bought the stocks on margin. If the market falls dramatically one day while you're holding these puts, you'll lose all the money you've made since '02. The best way to avoid this is to sell puts on stocks that already have fallen more than two standard deviations below their mean prices. Also, don't employ this strategy once the market itself has moved more than two standard deviations above its mean price. If the market falls after an extended rise, your short puts will get killed by volatility expansion too. This is a very dangerous strategy in this market environment.

Charting the Market's Response To Yesterday's Rate Cut

I think it's just the chart. It looks like volatility is lower back in the day because the index was around 500. With the index at 1000, movements on the chart would appear to be twice as large even if the volatility stayed the same. It's all about the scale of the chart. Wonder what it would look like if the top scale on the left side was 30, or the top scale on the right was 3,000. That''s why I asked what the charts mean. But I think Bespoke can't tell us because they manage money, and they have a fiduciary responsibility to determine if thier advice is appropriate for each client. Am I right?

Charting the Market's Response To Yesterday's Rate Cut

Pretty charts. What's it mean for the market?