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Dedication
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Dedication
by Hari P. Krishnan
The Second Leg Down
Cover
Title Page
Copyright
Dedication
Preface
Acknowledgements
About the Author
Chapter 1: Introduction
The Airplane Ticket Trade
The Bull Cycle
The Renegades
Claws of the Bear
Zugzwang
The Sceptics
A Sad Truth
Common Mistakes
Imprecise but Effective
Hedging Against Implausible Scenarios
A Black Swan in Correlation
Taking Profits
The Good, the Bad and the Ugly
The Great Escape
Having a Plan
Trend Following as a Defensive Strategy
Taking the Offensive
The Pre-Conditions for Market Crises
Banks: The Great Multiplier
A Change in Risk Regime
Endnotes
Chapter 2: “Safe” Havens and the Second Leg Down
The Matterhorn
Mrs. Watanabe's No. 1 Investment Club
The Risk of What Others are Holding
The Risk of What Others are Likely to Do
Here We Go Again
Summary
Endnotes
Chapter 3: An Overview of Options Strategies
The Building Blocks: Calls and Puts
Why Buy a Call or Put?
The Black–Scholes Equation and Implied Volatility
The Implied Volatility Skew
Hedging Small Moves
Delta Hedging: The Idealised Case
Practical Limits of Delta Hedging
Hedging Options with Other Options
Put and Call Spreads
Straddles and Strangles
The Deformable Sheet
Skew Dynamics for Risky Assets
The 1×2 Ratio Spread and Its Relatives
The Batman Trade
Implied Correlation and the Equity Index Skew
From Ratios to Butterflies
Calendar Spreads
Summary
Chapter 4: Hedging the Wings
Taking the Other Side of the 1×2
Comparing the 25 and 10 Delta Puts
Hedging Sovereign Bond Risk
Selling Put Ratio Spreads on the S&P 500
The Hypothetical Implied Distribution
Our Findings So Far
Back-Tests: A Cautionary Note
A Short Digression: Delta-Neutral or Comfortably Balanced?
The 665 Put
Implications of the Square Root Strategy
Futures vs Spot
A Dramatic Example
A Cross-Sectional Study
The “New” VIX: Model-Independent, Though Not Particularly Intuitive
The Spot VIX: Oasis or Mirage?
Migrating to VIX Options
Reflections on Figure 4.36
Migrating to Different Markets: The V2X
Risk-Regime Analysis
Conditional Performance of Hedging Strategies
Summary
Chapter 5: The Long and the Short of It
Short-Dated Options
The Physicists Weigh In
Buying Time
Long-Dated Options
Far from the Madding Crowd
R Minus D
The Lumberjack Plot
Selective Application of the Weekly Options Strategy
Summary
Chapter 6: Trend Following as a Portfolio Protection Strategy
What is Trend Following?
Trend Following Dogma
The Crisis Alpha Debate
An Aside: Diversifying Across Time
Taking Advantage of a Correction
The Niederhoffer Argument
Chasing 1-Day Moves
Pushing the Analogy Too Far
Analysing the Data Directly
LEGO Trend Following
Summary
Notes
Chapter 7: Strategies for Taking Advantage of a Market Drop
The Elastic Band
Trading Reversals
More Texas-Style Hedging
Selling Index Put Spreads
Breathing Some Life into the Equity Risk Premium
Buying VIX Puts
Selling VIX Upside
The Remarkable Second Moment
Summary
Chapter 8: “Flash Crashes”, Crises and the Limits of Prediction
Lord of the Fireflies
Cascading Sales
A Concrete Example
An Aside
Paths, Prints
The Role of the Central Bank
Credit Cycles at the Zero Bound
The Monetary Policy Palette
Reading the Tea Leaves
Summary and Conclusion
Glossary
References
Index
End User License Agreement
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To Sudarshan and Kailash
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