All financial decision making is about balancing risk and reward. In the particular case of trade execution the issue is how much we should pay to do a trade. If we are too aggressive we will kill our returns by paying too much, but if we are too passive we won’t ever make any trades at all. This is true no matter what size we are trading or how liquid the product is. The situation may differ by degree but the principles will be the same. The mathematics of balancing expected return and trading cost can become complex but there are also some broadly applicable rules of thumb that we can find. This chapter explores these heuristics.
While the FactorWave blog will continue, the actual FactorWave service has gone private. FactorWave was a case of "great steak but poor sizzle" . We were aware of this and spent a lot of time figuring out ways to add sizzle without compromising the advice (so we weren't going to add a lot of trades based on stupid analysis for example). One of the ideas we were playing with was to add a Chatbot to the site. But we soon realized that Chatbots were far more universal than that and if we wrote one for our site it could just as easily sit on a lot of other sites.
This is the second and concluding part of our interview with Artur Sepp.
Artur Sepp is a rare example of a quant who combines excellent technical skill with a practical understanding of markets. If you can't learn from his presentations the fault is more likely to be yours rather than his. He recently agreed to do an interview for us. Here is the first part.
Engelberg, McClean and Pontiff recently posted their paper, "Anomalies and News" to ssrn.
A member of our slack channel recently asked if there was an equivalent of "sell in May" for volatility trading. Does the volatility premium, the difference between implied volatility and the subsequent realized volatility, differ during summer and winter months?
I'm currently working on three things: a VIX option trading strategy, a piece about how factors relate to earnings announcements and a Kelly criterion type thing for options. But none is particularly close to being done. So I thought i would post a few links to articles that I found interesting. I'm not (just) doing this to put up a blog post. I think both of these are good reads.