Investing Research Articles

What kinds of returns do options traders actually achieve? In their January 2009 paper entitled “Investor Trading Behavior and Performances: Evidence from Taiwan Stock Index Options”, Bing Han, Yi-Tsung Lee and Yu-Jane Liu examine trading behavior and net returns for all traders of Taiwan stock index options. Using the complete record of transactions, orders and… Keep Reading

…a long options collar on a broad ETF generally outperforms the ETF over the past decade, and a return decomposition indicates that it also outperforms the ETF with protective puts.

…very limited evidence shows that the actual leverages of leveraged ETFs vary considerably from their short-term design values over extended holding periods.

…Outliers presents transformations of context to explain, retrospectively, why (positive) outliers in human performance are not really outliers but rather logical results of a “patchwork of lucky breaks and arbitrary advantages.” The book offers no proofs (or even examples) of the predictive power of the beliefs it advocates.

…evidence suggests that equity index options carry a price premium because of their value in hedging against shocks to return correlations among individual stocks. Options for individual stocks do not carry this premium.

…modeling suggests that sharp jumps in stock market volatility drive investors to overprice some equity index options, most consistently out-of-the-money put options.

…stock market momentum tends to affect the pricing of broad equity index options such that long options become less (more) desirable for playing continuation (reversal) of strong trends.

…investors may want to consider the cycle of stability, instability and collapse proposed via the Financial Instability Hypothesis (though unquantified) in judging the state of financial markets.

…investors may be able to use the Fed Model to enhance risk-adjusted returns via reduced portfolio volatility.

…investors with low-middle risk tolerance may accrue significant diversification benefits from adding proxies for real estate, commodities and high yield bonds to traditional portfolios of stocks, government bonds and cash.