Decaffeinating portfolios via volatility

摘要

It may seem counter-intuitive, but volatility can actually be a stabilizing force for your portfolio. Volatility-based strategies are typically non-correlated to traditional techniques and often result in smoother equity growth if properly employed. Here, we exploit volatility trends in Starbucks. Most traders consider sophisticated option strategies complex financial instruments, designed for pros only. As such, these techniques are often overlooked as a way to tap changes in volatility as a source of returns. However, volatility-oriented trading strategies can stabilize an investor's portfolio because of their non-correlation to traditional investments. Volatility-based strategies can reduce overall portfolio risk and provide insurance against external shocks. Theoretical foundations for volatility were laid by the German mathematician, Gauss, as in the Gausschen normal distribution, which works on the principle that coincidental values fluctuate around a middle value in the shape of a bell curve (log normal distribution). Economists Harry Markowitz, Fisher Black, Myron Scholes, Robert Merton and William Sharpe expanded on this in their formulas regarding portfolio theory and option-pricing models (see "A Black-Scholes Peek at Futures Prices," page 38).