Weird option strategies

[water7]

Options strategies are a way of expressing a pre-existing belief about the underlying, whether that's the future direction of its price or of its volatility, etc. It is with the pre-existing belief that you need to have an edge and then you can choose the best options strategy (or other implementation) with which to express it.

i couldn't said it better

 

[ironchef]

the second term in the exponent implies that return of the leveraged ETF is going to be negatively related to variance of the underlying index.

Can you explain in layman term what is variance?

Appreciate it.

 

[newwurldmn]

If the return of a levered ETF is "negatively related to variance of the underlying index," then is a levered ETF on a more volatile underlying going to return less than one on a less volatile underlying? (Rhetorical question -- the answer is: of course not).

Rhetorical answer -- the answer is: of course it is.

underlying rallies 1% to 101 and then sells off 1% (99.99). 2x fund rallies 2% to 102 and sells off to 2% to 99.96 [difference is 4 cents]

underlying rallys 10% to 110 and then sells off 10% to 99. 2x fund rallies 20% to 120 and then sells off 20% to 96. [difference is 3 dollars]

 

[Deuteronomy_24_7]

Everyone posts about the reversal case, rather than the equally likely continuation case.

 

[tradelosses]

Everyone posts about the reversal case, rather than the equally likely continuation case.

that is because volatility is a proxy for the choppiness of the path

 

[Deuteronomy_24_7]

No, it's a 'proxy' for the average magnitude of daily moves, reversal or continuation.