A Discounted View

During a market downturn the VIX is a commonly referenced indicator. The value of the VIX is derived from the price of out-of-the-money S&P 500 (SPX) put options and will increase as SPX declines. Given this behavior in the VIX, it can be used as a valuable trading tool  on its own and in combination with other indexes or indicators . For example, one of the most common strategies  is buying put options on the SPX when prices begin to top or decline. In other words, the VIX can be used for a simple equity market hedging strategy . This buying of SPX put options will cause the implied volatility to rise, resulting in higher premiums for the options. Since the VIX measures implied volatility of SPX index options, it will move inversely with the SPX. That is, as prices fall there is more put option buying which results in higher VIX levels. Not only does VIX increase as SPX declines, but it also has a tendency to increase more quickly the faster and farther the S...

Momentum is a very unique trading style. Cliff Asness defines it as “a phenomenon where securities that have performed well relative to peers (winners) tend to outperform. Additionally, securities that have underperformed peers (losers) tend to continue to underperform” (Fact, Fiction, and Momentum Investing). Momentum is different from, and should not be confused with, Trend Following . Momentum ranks securities relative to peer performance, whereas Trend Following focuses on absolute price changes . Moreover, momentum takes no position on a market direction when it ranks securities by recent performance. Conversely, Trend Following is a useful tool that can be used to identify the trending behavior of a market . In the investment business, momentum is one of the newest strategies. It was officially discovered in the academic community in 1993. Given this recent discovery by academics there remains much skepticism around momentum’s efficacy as a viable trading strateg...