How Bitcoin Options Compare to Equity Index Options: Volatility, Correlation, and Skew

Posted on March 4, 2025 By Harbourfront Technologies

Bitcoin options are derivative contracts that grant investors the right, but not the obligation, to buy or sell Bitcoin at a predetermined price before a specified expiration date. Major cryptocurrency exchanges offer options on Bitcoin and other cryptocurrencies, including select tokens. However, the vast majority of trading takes place on …

Forecasting Covered Call ETF Performance

Posted on February 28, 2025 By Harbourfront Technologies

A covered call ETF is an exchange-traded fund that employs a covered call strategy to generate income while maintaining exposure to the underlying assets. This strategy involves holding a portfolio of stocks and selling (or “writing”) call options on those stocks to collect option premiums. Covered call ETFs are particularly …

Applying Prospect Theory to Crypto Valuation and Portfolio Diversification

Posted on February 24, 2025 By Harbourfront Technologies

As cryptocurrencies become mainstream and gain acceptance, there is still no coherent investment framework for valuing them. Reference explores the differences between equity and crypto investors and proposes an investment framework for cryptocurrencies based on the prospect theory. The differences between equity and crypto investors are: Stock market investors …

Measuring Stock Market Dispersion: The Herd Behavior Index Approach

Posted on February 20, 2025 By Harbourfront Technologies

Dispersion in the stock market refers to the degree of variation in individual stock returns within an index or sector. High dispersion indicates significant differences in performance among stocks. Conversely, low dispersion suggests that stocks are moving more uniformly, often driven by broad market trends. Usually, dispersion is measured by …

Technical Trading Strategies: Profitable or Just Curve-Fitting?

Posted on February 16, 2025 By Harbourfront Technologies

Technical analysis (TA) is a trading approach that evaluates past price movements and volume data to forecast future market trends. It relies on price patterns, indicators, and statistical measures rather than fundamental factors. Investors use tools like moving averages, RSI, and Bollinger Bands to identify trends, support and resistance levels, …

Breaking Down the Volatility Risk Premium: Overnight vs. Intraday Returns

Posted on February 12, 2025 By Harbourfront Technologies

The decomposition of the volatility risk premium (VRP) into overnight and intraday components is an active area of research. Most studies indicate that the VRP serves as compensation for investors bearing overnight risks. Reference continues this line of research, with its main contribution being the decomposition of the variance …

Using ChatGPT to Extract Market Sentiment for Commodity Trading

Posted on February 8, 2025 By Harbourfront Technologies

A Large Language Model (LLM) is an advanced AI system trained on vast amounts of text data to understand, generate, and analyze human language. In finance, LLMs are used for tasks like analyzing earnings reports, generating market sentiment analysis, automating financial research, and enhancing algorithmic trading strategies. They can process …

Market Reactions to Corporate Earnings Under Different Volatility Regimes

Posted on February 4, 2025 By Harbourfront Technologies

Earnings announcements impact a company’s stock volatility. Reference examined the earnings reports of Dow Jones Industrial Average components over 10 years to better understand the relationship between different volatility regimes and the time it takes for earnings information to be fully absorbed by the market. The study focuses on …

Detecting Trends and Risks in Crypto Using the Hurst Exponent

Posted on January 31, 2025 By Harbourfront Technologies

The Hurst exponent is a statistical measure used to assess the long-term memory and persistence of a time series. It quantifies the tendency of a system to revert to the mean, follow a random walk, or exhibit a trending behavior. A Hurst exponent (H) value between 0 and 0.5 indicates …

How End-of-Month Returns Predict the Next Month’s Performance

Posted on January 27, 2025 By Harbourfront Technologies

Calendar anomalies in the stock market refer to patterns where stock returns deviate from expected behavior based on the time of year, month, or even day. Well-documented anomalies include the “Sell in May and Go Away” strategy, which suggests that stocks underperform during the summer months, and the “Turn-of-the-Month Effect,” …