Compare this to the traditional 10 by 10 multiplication table for decimal numbers.
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Take a look at the implied volatility levels of options with the same expiration on the same underlying, but with different strikes, and you are likely to see that they vary significantly. It is not unusual for an out-of-the-money put option to trade with a significantly higher implied volatility level than say an out-of-the-money call option on the same product, expiring on the same date. This is known variously as the volatility curve or smile or skew. (The names have slightly varied meanings; you can learn more in this article). Now, the effect of this is that options on the same product with the same expiration are priced differently in volatility terms. So from a gamma trading perspective, some of these options will be relatively cheaper than others, even though they are struck on the same underlying.
The ratio of the portfolio is worth tracking. For some products with very steep skews, it can be possible to generate truly awful/fantastic ratios (such as paying theta to be short gamma or collecting theta to be long gamma). This could occur when the portfolio is long very high vol options and short low vol options. For example, in equity index options, owning puts and being short calls is notorious for causing undesirable gamma/theta ratios. There are other reasons why a trader may still want to hold such a position in spite of the inefficient gamma/theta trade-off (and why shorting index puts is not a ‘free money gamma trade’!). But any trader is still well served by knowing the gamma he owns or is short relative to the theta decay he is paying or collecting. Forewarned is forearmed, as they say!
Gamma trading involves scalping the underlying product via gamma hedges. The difference between long and short gamma hedging is that long gamma hedges are always locking-in some kind of revenue, whereas short gamma hedges always lock in some kind of loss. You can learn more about the difference between long and short gamma in this article. The flip-side to any gamma position is the theta position. So whilst any gamma hedges that the short gamma player will make will be losing hedges (and are only executed to prevent even bigger losses occurring), he hopes that the total loss from these hedges is outweighed by the gain from the decay in the option value. The long gamma player is fighting against time decay, hoping his gamma hedges make more than enough revenue to cover the theta bill.
Consider an at-the-money option trading at 25% implied vol which has 5 gamma and 10 theta. Assume then, that if I buy 100 lots of the options, I will have 500 gamma and be paying $1,000 per night for the privilege. Now suppose there are some out-of-the-money puts, expiring at the same time and struck on the same underlying. These are trading at 30% implied vol, have 2 gamma and 5 theta. Notice that they have lower gamma and theta than the at-the-money options, as we would expect. To own 500 gamma via the puts, I need to buy 250 lots (250 * 2 gamma). But these puts have a higher relative theta. 250 lots of these puts will cost $1250 per night (250 * 5) to own. The conclusion is that these puts are a more expensive way to own gamma than the at-the-money options. Sure, there are other risks to consider (such as vega risk and skew risk) but when viewed as a straight gamma trading-play, owning the puts is less efficient than owning the at-the-monies. And flipping things round, shorting the puts in order to be short gamma and collect theta, is done more efficiently via the puts.
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The CFTC is the federal agency that regulates the trading of commodities futures and options in the USA.
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If you have another IME installed (like koteri for Mac or Windows IME) you can keep that one if you’d like. If you don’t have any IME installed, or want to try something new / better, keep reading.
Step 2: Follow the instructions on installing it on your particular operating system.
The first thing you have to do is be able to type in Japanese. I’m sure many of you can do that already, but for those of you who can’t (and for those of you who want to get a little better at typing in Japanese), keep reading on. Whoever you are, it’s probably a good idea to (at the very least) skim the next couple pages to make sure you know what’s going on.
Step 3: It’ll look different depending on your operating system, but Google IME may be ready to go on your computer. If not, try these steps:
Step 1: Download Google’s Japanese IME (the download page is in Japanese, but the application itself is not – just hit the big blue button that says ダウンロード).
Once you’ve gotten Japanese set up on your computer, you’ll be ready to start typing. Here’s the big question, though: How do you type in Japanese?
An IME is an “Input Method Editor.” This is an application that lets you type in other languages, using your keyboard (versus using a Japanese keyboard, or something like that). There are a few IME applications out there, including ones that come with your computer. I’m going to cover MacOSX and Windows in this chapter (sorry Linux users, I’m just going to assume you’re more tech savvy than I am and can do all this because you’re using Linux and awesome like that – still, you get a forum post written by a fellow member to help you out!). Whether you have a Mac or PC, I’m going to have you install the same IME (made by Google) because I think it’s easier to use, it’s cross platform, and better overall (at least in my opinion).
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SHAHANI: But that got members of Congress very upset. Inquiries were started. Testimony had to be given. So basically it became a huge political issue, and for Facebook as a business, it's an issue because Facebook is not trying to be the platform for just one political party or the other. Facebook wants to be everyone's social network.
SHAPIRO: So how do you eliminate bias from a list of the biggest news stories of the day? Leave it up to computers. This past Friday, Facebook made the switch. The company fired its human news curators and publicly announced that algorithms, computer code would be finding and posting the hot topics of the day - no more news curators, no more bias. All it takes for a story to hit the trending list is enough people sharing it with their friends.
SIEGEL: Now, how could a fictitious article from a sketchy web site make its way to such a prominent place on people's Facebook feeds? Well, back in May, Facebook was accused of suppressing conservative news media in its trending feeds. Facebook denied it.
AARTI SHAHANI, BYLINE: Fox News commentator Megan Kelly is a Hillary Clinton supporter.
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Overall, this is welcome news for average investors, who will find it easier than ever to opt for cheaper funds. In today's shaky markets, you need every advantage you can get.
That's why it makes sense to focus on low-fee funds, even if you prefer active management to passive investing. Low-cost actively managed funds typically beat their higher-cost peers, according to a Morningstar study. In our MONEY 50 ranking of the best mutual funds and ETFs, we include only inexpensive active funds, along with index funds and ETFs. (For the full run-down on mutual fund fees, read this cheat sheet.)
Average expenses for Fidelity funds will drop to 0.102%, down from 0.116%, following the lead of other fund managers like Charles Schwab and Goldman Sachs, who lowered fees to 0.03% and 0.09%. That means for every $100 you've invested in one of these funds, you're paying less than a dollar in fees.
For the everyday investor and those saving for retirement, the fund fee wars have been a huge benefit. Fund fees take a big bite out of your investing profits. And in today's low-return environment, minimizing fees is more crucial than ever.
Tuesday's announcement comes after another investor-friendly Fidelity move in May, which made the company's index funds more accessible by opening them up to other brokerages.
According to a release sent out on Tuesday, financial services company Fidelity announced that starting on July 1, it will "reduce total expenses on 27 of its equity and bond index mutual funds and exchange traded funds," a move that will position the investing company directly against competitors like Vanguard, which has famously low fees for investors.
There's another entry in the race-to-the bottom to lower investing fees. This time, it's Fidelity making a move.
With this change, the expense ratio for Fidelity 500 Index will now be even cheaper than rival Vanguard 500 Index , which charges 0.16%. And it will match Schwab S&P 500 Index , which also carries an 0.09% fee.
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The Options Industry Council (OIC), an industry resource funded by OCC and the U.S. options exchanges, announced the results of a study, How Financial Advisors Use and Think About Exchange-Listed Options.
OIC is on YouTube. Check out the latest here.