Net Gamma Exposure (NGE) and its effect on stock prices has been an active research topic recently. Reference applied this concept to the Chinese stock market, studying the NGE effect on intraday stock direction and the relationship between futures and options. Specifically, the paper presents evidence supporting the idea …

Geometric Brownian Motion (GBM) is a widely used mathematical model for simulating the random behavior of asset prices in financial markets. It assumes that the price of an asset follows a continuous-time stochastic process, where the logarithmic returns are normally distributed. GBM is foundational in option pricing models like Black-Scholes-Merton. …

Bitcoin ETF options started trading last week. The debut of Bitcoin ETF options was met with significant bullish sentiment, as over 80% of trades were call options. Investors exhibited strong optimism about Bitcoin’s future price, with many purchasing options at a strike price of $100,000. This launch marks an important …

More than 40 years ago, Merton et al. published two papers examining the performance of passive options strategies. They concluded that these strategies outperformed the traditional buy-and-hold approach. At the time of their studies, options data was not widely available, so they used historical volatility to calculate options prices. …

Delta hedging is a risk management strategy used to neutralize the impact of price movements in the underlying asset of an option. It involves adjusting the position in the underlying asset to offset the sensitivity of the option’s value, measured by its “delta.”  Delta represents the rate of change in …

Catastrophe bonds, or CAT bonds, are a type of risk-linked security designed to transfer the financial risk of natural disasters from insurers to investors. These bonds are typically issued by insurance or reinsurance companies to cover significant losses caused by events such as hurricanes, earthquakes, or floods. Investors in CAT …

It’s well-known that there is a strong negative correlation between the S&P 500 index and the VIX. But what exactly is the causal relationship between them? In the financial media, we often see analysts using the VIX as an indicator to time and predict market direction. Is this approach valid? …

The put-call ratio (PCR) is a popular indicator used in financial markets to gauge investor sentiment. It is calculated by dividing the number of traded put options by the number of traded call options over a specific period. The put-call ratio is often promoted and utilized by market analysts for …

VIX Exchange-Traded Products (ETPs) are financial instruments designed to provide exposure to the CBOE Volatility Index (VIX), which measures the market’s expectation of 30-day forward-looking volatility derived from S&P 500 options. VIX ETPs, such as ETFs and ETNs, allow investors to gain exposure to volatility without directly trading options or …

Linear regression is a widely used prediction technique in finance. Linear regression can estimate the relationship between a dependent variable (such as stock price) and one or more independent variables (like market indices or economic indicators). This approach is particularly useful in predicting trends, asset prices, and risk factors. However, …