Quantitative Finance Collector is a blog on Quantitative finance analysis, methods in mathematical finance focusing on derivative pricing, quantitative trading and quantitative risk management.
Aug
16
In my previous post Binary Option Trading I introduced a simple online trading platform Eztrader, where investors are allowed to trade hourly, dayly, and weekly call/put binary options on different stocks, currencies, indices, etc.
I have more words to say after posting that article almost half a year, and generating around 60% return, although still a small sum of money. A few personal advice:
1, binary option trading is riskier than equity trading. It is nearly a 0 or 1 game, you can double and empty your investment quickly than you thought. For example, a daily call option has a payout ratio of 81%, which means for a $100 trading, you earn $81 if you "bet" correctly the direction, and lose $95 if you are wrong. So don't trade unless you realize a clear pattern, I feel much better to wait for the next opportunity than to trade my luck;
2, since the hourly & daily options are too short to be analyzed and backtested, unless you can get access to high-frequency data, those momentum & trend following strategies are not useful for the binary option trading. Those strategies listed at High Probability ETF Trading Strategies on Stock and Quantitative trading strategies haven't found a place for me;
I have more words to say after posting that article almost half a year, and generating around 60% return, although still a small sum of money. A few personal advice:
1, binary option trading is riskier than equity trading. It is nearly a 0 or 1 game, you can double and empty your investment quickly than you thought. For example, a daily call option has a payout ratio of 81%, which means for a $100 trading, you earn $81 if you "bet" correctly the direction, and lose $95 if you are wrong. So don't trade unless you realize a clear pattern, I feel much better to wait for the next opportunity than to trade my luck;
2, since the hourly & daily options are too short to be analyzed and backtested, unless you can get access to high-frequency data, those momentum & trend following strategies are not useful for the binary option trading. Those strategies listed at High Probability ETF Trading Strategies on Stock and Quantitative trading strategies haven't found a place for me;
Jun
8
A guest post from our Elliott.
Dear mathfinance.cn reader,
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Dear mathfinance.cn reader,
We have a very special offer for traders today. Our friends at Elliott Wave International, the world’s largest market forecasting firm, have just updated their free report, How to Use Bar Patterns to Spot Trade Setups. With thousands of downloads, “Bar Patterns” has always been a huge hit with traders. But now it’s been packed with even more ways you can use common bar patterns to spot high-probability trading opportunities: 30 charts across 15 pages!Don’t miss out on this opportunity to learn simple new ways to spot valuable trade setups in the charts you view every day.
Download Your Free Bar Patterns Report Now.
Apr
28
This post is writen by Jovan, one of our contributors currently studying MFE, thanks, Jovan.
A couple of weeks ago one of my friends had an interview at a local hedge fund and he had to prepare Greeks of exotics, so we decided to plot them. In Uwe Wystup’s book, Options in FX markets there is a nice and very clear analytical solution, and mathematica 7 is good in symbolic so the code just takes the derivatives and plots them. Also to check the solution of down and out call we plotted the down and in call and their payoff combines into a regular call so that there wasn’t a mistake. If you do not have mathematica there is a mathematica free file viewer form Wolfram.
Together with the codes there is a mini manipulate idea where you can see the interaction of the Greeks with other input parameters such as a Barrier where you see that the delta explodes when you are close to expiry and to the barriers. Uwe Wystup suggests that then one should do a barrier shift to prevent this so that one should rehedge your portfolio based on that shifted barrier. If you are interested to see this please download the attached Mathematica files and check it out.
Download
A couple of weeks ago one of my friends had an interview at a local hedge fund and he had to prepare Greeks of exotics, so we decided to plot them. In Uwe Wystup’s book, Options in FX markets there is a nice and very clear analytical solution, and mathematica 7 is good in symbolic so the code just takes the derivatives and plots them. Also to check the solution of down and out call we plotted the down and in call and their payoff combines into a regular call so that there wasn’t a mistake. If you do not have mathematica there is a mathematica free file viewer form Wolfram.
Together with the codes there is a mini manipulate idea where you can see the interaction of the Greeks with other input parameters such as a Barrier where you see that the delta explodes when you are close to expiry and to the barriers. Uwe Wystup suggests that then one should do a barrier shift to prevent this so that one should rehedge your portfolio based on that shifted barrier. If you are interested to see this please download the attached Mathematica files and check it out.
Download
Apr
13
A follow up of yesterday's introductory article What You Need to Know About Option as A Beginner Part I (last one on this topic
).
a) Call option
It is the option to buy shares of stock at a specified time in the future. Often it is simply labeled a "Call". The buyer of the option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying instrument) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price). Whereas the seller is obligated to sell the commodity or financial instrument should the buyer so decide. The buyer pays a fee (called a premium) for this right.
For example, let's look at a call option contract at a strike price of $100 for a given stock. Let's use the current month for this example. Let your requirement be to buy 100 shares of the stock which is currently trading at $110/share. And you are buying those stocks, not by the way of options, then you would be paying $11000 for the 100 shares. This means that you will be losing around $1000 for buying the stocks. But if you were to use this option contract and if it were to expire at the same stock price of 110/share then you would have the option to buy 100 shares of that stock at $100/share. Thus you can have a profit of $1000; which is nothing but the cost to buy the option. Here in this, lets hope that the stock at the time of expiration will be, say, $115/share and so you would end up making $500 over what your option costs were. But of course, if the stock price drops to $105/share then you will end up losing $500 on the deal, which will be the bad part of it.
a) Call option
It is the option to buy shares of stock at a specified time in the future. Often it is simply labeled a "Call". The buyer of the option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying instrument) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price). Whereas the seller is obligated to sell the commodity or financial instrument should the buyer so decide. The buyer pays a fee (called a premium) for this right.
For example, let's look at a call option contract at a strike price of $100 for a given stock. Let's use the current month for this example. Let your requirement be to buy 100 shares of the stock which is currently trading at $110/share. And you are buying those stocks, not by the way of options, then you would be paying $11000 for the 100 shares. This means that you will be losing around $1000 for buying the stocks. But if you were to use this option contract and if it were to expire at the same stock price of 110/share then you would have the option to buy 100 shares of that stock at $100/share. Thus you can have a profit of $1000; which is nothing but the cost to buy the option. Here in this, lets hope that the stock at the time of expiration will be, say, $115/share and so you would end up making $500 over what your option costs were. But of course, if the stock price drops to $105/share then you will end up losing $500 on the deal, which will be the bad part of it.
Apr
12
My third introductory article.
Knowledge about Option pricing is essential prior investing in those. If you are a novice, then you are in the right spot. Here in this article, you could get a basic knowledge about the Option, its type & pricing etc.
Basic definition of Option
In order to understand about Option pricing, you need know about the option first. Option is nothing but an official contract, between a buyer and a seller, that gives the buyer of the option the right, but not the obligation, to buy or sell a specified asset on or before the option’s expiration date, at an agreed price (the strike price).
Types (Call and Put)
A “Call option” gives the buyer of the option the right to buy the underlying asset at the strike price whereas the “Put option” gives the option to sell the underlying asset at the strike price. If the buyer chooses to exercise this right, the seller is obliged to sell or buy the asset at the agreed price. The buyer may choose not to exercise the right and let it expire. The underlying asset can be a piece of property, a security (stock or bond), or a derivative instrument, such as a futures contract.
Knowledge about Option pricing is essential prior investing in those. If you are a novice, then you are in the right spot. Here in this article, you could get a basic knowledge about the Option, its type & pricing etc.
Basic definition of Option
In order to understand about Option pricing, you need know about the option first. Option is nothing but an official contract, between a buyer and a seller, that gives the buyer of the option the right, but not the obligation, to buy or sell a specified asset on or before the option’s expiration date, at an agreed price (the strike price).
Types (Call and Put)
A “Call option” gives the buyer of the option the right to buy the underlying asset at the strike price whereas the “Put option” gives the option to sell the underlying asset at the strike price. If the buyer chooses to exercise this right, the seller is obliged to sell or buy the asset at the agreed price. The buyer may choose not to exercise the right and let it expire. The underlying asset can be a piece of property, a security (stock or bond), or a derivative instrument, such as a futures contract.
