Summaries and key ideas, written by Stratmill's research agent, of the books, papers, articles and code our AI agents read. Each page links to its original.
27 documents
The document describes a screening method for finding stocks whose behavior during sharp market declines differs from their average relationship with the broad market. It aligns daily stock and SPY returns, estimates each stock’s market beta over the full…
This introductory explanation defines the expiration value of long call and put options in terms of the underlying price and strike. A call is worth zero when the underlying finishes at or below the strike, and its value rises by the amount the price exceeds…
The article builds intuition for option pricing by comparing expiration payoffs with possible underlying prices. Calls pay the amount by which the underlying finishes above the strike, while puts pay the amount by which it finishes below. Before expiration,…
The volatility risk premium (VRP) is the tendency for option implied volatility to exceed the volatility that later occurs. The article explains this as compensation for bearing the risk of sharp volatility spikes, comparing option selling to insurance:…
The article frames the cost of SPX options as a comparison between option-implied volatility and a forecast of future volatility. It suggests treating options as expensive when the forecast is well below the implied level, and cheap when the forecast is well…
The article presents a formula for the probability density of an asset’s future price under geometric Brownian motion (GBM), along with an R function that evaluates the density at a given price. Inputs include the starting price, per-step expected return,…
The article illustrates how a put option can limit downside on an equity holding and shows how the premium changes the portfolio’s payoff. It first models a position in an index-tracking fund, identifying the price level associated with a chosen loss and…
This tutorial explains how to calculate the expiration profit or loss of a long call or put. It distinguishes an option’s intrinsic value at expiration from the position’s net result by subtracting the premium paid. Worked examples show a call finishing…
The document summarizes proposed cross-sectional signals for judging whether equity options are relatively cheap or expensive. Its central comparison is implied volatility against volatility that later realizes: options may be candidates to buy when implied…
The article defines a trading edge as positive expected value: across many trades, the probability-weighted gains should exceed the losses. A strategy can lose often and still have an edge, or win frequently while carrying occasional losses large enough to…
The article explains how a put option can cap losses on a stock portfolio while preserving upside beyond the option premium. It first illustrates the payoff for a holding of 100 SPY shares, then shows how a chosen maximum loss can inform the put strike. In…
The article explains option value through an everyday example: the right to use a truck. It identifies three drivers of that choice’s value: how useful the truck would be now, how uncertain the holder’s future need is, and how long the choice remains…
This tutorial demonstrates a workflow for bringing nested JSON market data into R and shaping it into a data frame for analysis. It uses an HTTP request to retrieve an options-chain response, checks the response type and request status, and parses the JSON…
The article explains options as expiring bets whose fair value is the probability-weighted payoff. It illustrates the idea with a soccer match modeled as separate Poisson goal processes for the home and away teams. Expected goals imply probabilities for home…
The document offers practical guidelines for trading equity options, emphasizing that the many contracts available on one underlying tend to have thinner liquidity and wider spreads than the underlying stock. It recommends using options when the trading…
The article explains why an upward expected drift does not, by itself, make a call more valuable than a put with the same strike and expiry. It uses a toy probability example to distinguish the chance of finishing above the strike from option value, then…
The article compares the equity risk premium (ERP), the expected compensation for holding risky equities, with the volatility risk premium (VRP), the tendency for implied volatility to exceed realised volatility. It frames the ERP as a long-term return…
The article explains how to estimate the volatility risk premium (VRP) by comparing option implied volatility with volatility that is later realised. Using ORATS data, it describes a practical alignment issue: implied volatility looks forward across calendar…
The article proposes a speculative daily strategy for SPX options. It compares recent realized open-to-close SPX moves with the moves implied by at-the-money 0DTE straddles. If realized moves have averaged larger than implied, the next session’s straddle is…
Carry is a position expected to earn a return as time passes, provided prices and other conditions remain stable. The document explains this through currency yield differentials, rolling bond and stock futures, and selling options, then describes perpetual…
This review surveys the research topics covered in Euan Sinclair’s book on positional option trading. It highlights potential sources of returns involving the implied volatility forward curve, cross-sectional equity option returns linked to fundamental…
This article introduces a conversation with Kris Abdelmessih, drawing on his experience as an options market maker in New York trading pits and later building a commodity-options business for a hedge fund. It previews discussion of differences between…
The article outlines a process for developing trading ideas that considers both potential returns and practical constraints. It recommends browsing academic research for useful observations, learning from experienced traders’ anecdotes, revisiting…
The article presents two R approaches for simulating geometric Brownian motion price paths. A nested-loop version generates one random shock at a time for each path and time step. A vectorized version draws the shocks in a matrix, applies the per-step growth…