Cut risk and generate profit even after the market drops The Second Leg Down offers practical approaches to profiting after a market event. Written by a specialist in global macro, volatility and hedging overlay strategies, this book provides in-depth insight into surviving in a volatile environment. Historical back tests and scenario diagrams illustrate a variety of strategies for offsetting portfolio risks with after-the-fact options hedging, and the discussion explores how a mixture of trend following and contrarian futures strategies can be beneficial. Without a rational analysis-based approach, investors often find themselves having to cut risk and buy protection just as options are at their most over-priced. This book provides practical strategies, expert analysis and the knowledge base to assist you in recovering your portfolio. Hedging strategies are often presented as expensive and unnecessary, especially during a bull market. When equity indices and other unstable assets drop, they find themselves stuck - hedging is now at its most expensive, but it is imperative to hedge or face liquidation. This book shows you how to salvage the situation, with strategies backed by expert analysis. * Identify the right hedges during high volatility * Generate attractive risk-adjusted returns * Learn new strategies for offsetting risk * Know your options for when losses have already occurred Imagine this scenario: you've incurred significant losses, you're approaching risk limits, you must cut risk immediately, yet slashing positions would damage the portfolio - what do you do? The Second Leg Down is your emergency hotline, with practical strategies for dire conditions.
Autorentext
HARI P. KRISHNAN, PHD, is a fund manager at Cross-Border Capital, where he runs systematic macro and volatility strat-egies. Cross-Border is a London-based hedge fund with roughly US$300 million in assets. He previously managed a CTA for a London-based asset management bou-tique, and he was an executive director and co-head of alternative asset allocation at Morgan Stanley (Chicago and London). In addition, Dr. Krishnan has worked as an options trading strategist and as a senior economist at the Chicago Board of Trade. He received a PhD in applied math from Brown University, and he was a post-doctoral research scientist at the Columbia Earth In-stitute, Columbia University, before moving into finance.
Klappentext
Cut risk and generate profit even after the market drops
The Second Leg Down offers practical approaches to profiting after a market event. Written by a specialist in global macro, volatility and hedging overlay strategies, this book provides in-depth insight into surviving in a volatile environment. Historical back tests and scenario diagrams illustrate a variety of strategies for offsetting portfolio risks with after-the-fact options hedging, and the discussion explores how a mixture of trend following and contrarian futures strategies can be beneficial. Without a rational analysis-based approach, investors often find themselves having to cut risk and buy protection just as options are at their most over-priced. This book provides practical strategies, expert analysis and the knowledge base to assist you in recovering your portfolio.
Hedging strategies are often presented as expensive and unnecessary, especially during a bull market. When equity indices and other unstable assets drop, they find themselves stuck - hedging is now at its most expensive, but it is imperative to hedge or face liquidation. This book shows you how to salvage the situation, with strategies backed by expert analysis.
* Identify the right hedges during high volatility
* Generate attractive risk-adjusted returns
* Learn new strategies for offsetting risk
* Know your options for when losses have already occurred
Imagine this scenario: you've incurred significant losses, you're approaching risk limits, you must cut risk immediately, yet slashing positions would damage the portfolio - what do you do? The Second Leg Down is your emergency hotline, with practical strategies for dire conditions.
Zusammenfassung
Cut risk and generate profit even after the market drops
The Second Leg Down offers practical approaches to profiting after a market event. Written by a specialist in global macro, volatility and hedging overlay strategies, this book provides in-depth insight into surviving in a volatile environment. Historical back tests and scenario diagrams illustrate a variety of strategies for offsetting portfolio risks with after-the-fact options hedging, and the discussion explores how a mixture of trend following and contrarian futures strategies can be beneficial. Without a rational analysis-based approach, investors often find themselves having to cut risk and buy protection just as options are at their most over-priced. This book provides practical strategies, expert analysis and the knowledge base to assist you in recovering your portfolio.
Hedging strategies are often presented as expensive and unnecessary, especially during a bull market. When equity indices and other unstable assets drop, they find themselves stuck hedging is now at its most expensive, but it is imperative to hedge or face liquidation. This book shows you how to salvage the situation, with strategies backed by expert analysis.
- Identify the right hedges during high volatility
- Generate attractive risk-adjusted returns
- Learn new strategies for offsetting risk
- Know your options for when losses have already occurred
Imagine this scenario: you've incurred significant losses, you're approaching risk limits, you must cut risk immediately, yet slashing positions would damage the portfolio what do you do? The Second Leg Down is your emergency hotline, with practical strategies for dire conditions.
Inhalt
Preface xi
Acknowledgements xiii
About the Author xv
Chapter 1 Introduction 1
The Airplane Ticket Trade 1
The Bull Cycle 2
The Renegades 3
Claws of the Bear 3
Zugzwang 4
The Sceptics 5
A Sad Truth 5
Common Mistakes 6
Imprecise but Effective 7
Hedging Against Implausible Scenarios 8
A Black Swan in Correlation 8
Taking Profits 8
The Good, the Bad and the Ugly 9
The Great Escape 9
Having a Plan 10
Trend Following as a Defensive Strategy 11
Taking the Offensive 12
The Pre-Conditions for Market Crises 12
Banks: The Great Multiplier 13
A Change in Risk Regime 13
Chapter 2 Safe Havens and the Second Leg Down 14
The Matterhorn 15
Mrs. Watanabe's No. 1 Investment Club 18
The Risk of What Others are Holding 19
The Risk of What Others are Likely to Do 22
Here We Go Again 24
Summary 28
Chapter 3 An Overview of Options Strategies 29
The Building Blocks: Calls and Puts 29
Why Buy a Call or Put? 34
The BlackScholes Equation and Implied Volatility 36
The Implied Volatility Skew 38
Hedging Small Moves 38
Delta Hedging: The Idealised Case 39
Practical Limits of Delta Hedging 41
Hedging Options with Other Options 43
Put and Call Spreads 43
Straddles and Strangles 44
The Deformable Sheet 46
Skew Dynamics for Risky Assets 48
The 1×2 Ratio Spread and Its Relatives 50
The Batman Trade 53
Implied Correlation and the Equity Index Skew 56
From Ratios to Butterflies 59
Calendar Spreads 65
Summary 67
Chapter 4 Hedging the Wings 68
Taking the Other Side of the 1×2 68
Comparing the 25 and 10 Delta Puts 69
Hedgi…