Volatility is a concept that is relatively well understood and used widely in the financial market. Correlation, on the other hand, is less understood. Nevertheless, it is used frequently in trading and portfolio management. Correlation between 2 assets is a measure that shows the strength of the relationship between them. …

In order to win in trading, one should have an edge, i.e. have a slight advantage over others. This means having information or strategies that the majority of other traders don’t have. There are a few different ways to get an edge in the trading world. One is by having …

Technical trading is a method of analyzing securities by studying past price movements and trends. Based on this analysis, traders then make decisions about what trades to make. Technical traders use indicators to develop algorithmic trading systems. These trading systems are popular in the equity and commodity futures markets. Reference …

Post-earnings-announcement drift (PEAD) is the tendency for a stock’s price to move in the direction of an earnings surprise for several weeks, or even months, following an earnings announcement. PEAD is a well-known phenomenon in the equity market, and trading strategies developed based on it resulted in superior returns. Reference …

A stop-loss order is an order to buy or sell a security when the price reaches a certain level. A stop-loss order is designed to limit an investor’s losses on a position in a security. There are two main types of stop-loss orders: stop market orders and stop-limit orders. A …

Historical volatility is a prevalent statistic used by options traders and financial risk managers. Historical volatility measures the past fluctuations in the price of an underlying asset. When there is a rise in historical volatility, a security’s price will also move more than normal. At this time, there is an …

The Black–Scholes-Merton (BSM) model is a renowned option pricing model used widely in financial markets. It was published by Fischer Black, Myron Scholes , and then Robert Merton in the early 1970s. Scholes and Merton later received the Nobel Memorial Prize in Economic Sciences for their work (Black died before …

The binomial options pricing model is an option pricing approach used to price American-style options. An American option is a financial contract that can be exercised at any time up to and including on the expiration date. This contrasts with a European option, which can only be exercised on the …

Across several time frames and equity markets, momentum trading strategies that involve buying past winners and selling past losers have produced considerable gains. In recent years, asset management firms have offered investment vehicles that provide investors with easy access to momentum strategies. The number of funds and the asset under …

Black–Scholes model is a celebrated option pricing model used in financial markets. It was published by Fischer Black, Myron Scholes, and Robert Merton. Scholes and Merton received the 1997 Nobel Memorial Prize in Economic Sciences for their work (Black died before the prize announcement). The model is now widely used …