One thing to consider is that inflation does not rise immediately. I believe it takes something like 2 or 3 quarters for the effect of an interest rate change to be transmitted thorough the economy.

Also, you have to look at the whole yield curve. The shorter end is more sensitive to changes in the cash rate (commercial paper). A surprise rate hike will work its way into bank bill prices more or less immediately. While the longer end is more sensitive to the expected rate of inflation, with higher inflation expectations leading to selling of bonds thus pushing up their interest rate.

Beta is a measure of the volatility of stock relative to the market. The market as a whole is defined as having a beta of 1. If a stock has a beta of 1.1, then in the past it has tended to move in the same direction as the market, but on average, 10% more. You can calculate a weighted beta of your portfolio and use that to help with your hedging.

Alpha is a measure of returns delivered by a fund manager in excess of the market.

For options, the delta is, like you said, the change in the option price with respect to the underlying. A rule of thumb is that (for long call options) at the money options have a delta of 0.5, in the money 1>delta>0.5 and out of the money 0.5>delta>0.

Long put options have a negative delta, which we would expect, since if the price falls, they become more valuable.

Gamma is a measure of how much delta changes with respect to the underlying. When the underlying moves, and the option moves from ATM to deep ITM, our delta changes from 0.5 to 1 (for a long call). Gamma tells you about this.

Theta is a measure of the rate of time decay. For long options, it is always negative (as time is working against you). It measures, as one more day passes, by how much value does the option change? NB, theta is not constant, another rule of thumb is that an option loses 1/3 of its time value in the 1st half of its life, and 2/3 in the 2nd half, so time decay accelerates as time to expiry approaches. From this comes the rule buy long term, sell short term.

Vega (or Kappa) is a measure of the options price to changes in volatility i.e. for a 1% change in volatility, how much will my option's value change?

Rho is a measure of the options price to changes in the interest rate. i.e. if interest rates change by 1%, how much will my option's price change?

Re. the bond/inflation question

Another thing that I thought of today, is that there is no simple link between interest rates and inflation. Changing interest rates affects demand, whether or not this translates into changes in inflation depends on things like the capacity utilisation (i.e. is there spare capacity in the system to increase supply to meet the higher demand), and unemployment (i.e. are there enough new workers to cope with the increased demand) etc. The two main types of inflation are known as demand-pull inflation (demand increases faster than supply can keep up, resulting in prices being bid up) and cost-push inflation (the price of raw materials increases, e.g. oil, and the increase costs are passed on).

Updated to add in the payoff diagrams - taken from afr.com

Thanks for the information, bonecrusher. I see that the costs of using puts and calls for risk management seem to outweigh the benefits.

By "dynamic stop-losses", I meant trailing stop orders. If these are to be used, what strategy do you recommend? 30% of recent high? What is "recent": last week, month, year? 10% of initial purchase price? How do you generally decide where to set them and how often to change them?

I'd like to find out the mean/median/stdev of various stock and ETF hourly prices for a given week. I'd also like to find out those numbers for daily prices over a given month or year. Are there any websites out there that provide this information freely?

Thanks,
D.

How long until there are options for the new 3x ETFs?

Also, are there going to be any 3x long/short DOW/S&P 500 ETFs coming out anytime soon?

I literally started trading on a play money account yesterday (long term interest in getting into it after I graduate etc) as part of some JPMorgan come-visit-our-offices thing at college. It's trading forex.

Obv I wanna win the competition so I did a bit of research and found a bunch of videos on fibonacci retracements which seems like the real basics and a good point to start. My question is, if every major peak and trough bounces off the fibonacci lines, won't the price eventually just tend towards stability? What's a good method to predict if a security is going to penetrate the fibonacci lines?

RE Beta. I learned this in finance but i'm a bit rusty: The beta of a portfolio is the weighted average beta of all securities in the portfolio. A securities beta is the securities volatility in relation to the markets volatility.

a=asset, p=portfolio (where I *think* if you're working out individual assets betas the portfolio would be the market as a whole - the index).

CAPM, SML, and Black-Scholes are all things worth looking into and learning if you're interested in this stuff btw.

how is the USO etf expense ratio collected? i know etf expense ratios are usually collected thru the dividends but USO has no dividends

Suppose you held the USO for an entire year and it never traded essentially keeping the same price as the day you bought it. The expense ratio and management fee would have been deducted from the price of your ETF so it would be worth 1.36% less than your initial purchase price. I do not know if this is amortized over one year and deducted daily but I suspect that is the case.

Jimbo

i found this in the prospectus:

"Fees are calculated on a daily basis(accrued at 1/365 of the applicable percentage of NAV on that day) and paid on a monthly basis"

does this work like a dividend in which the stock will go up by the expense cost immediately after the period it is paid? or will the etf not reflect the expense ratio and it will be able to be dodged by selling immediately before the fee is to be paid?

How exactly do they collect though? Its not like a mutual fund where they actually take the fractional shares away to pay expenses, is it?

I read this whole thread and haven't seen this question asked yet. To the people trading stocks/commodities/forex, is there a single provider that allows you to do all this? I am with Ameritrade (have been inactive for awhile) and they don't have any forex or commodities trading there. I think tradestation does it but is there anyone cheaper? They seemed a bit pricey to me.

Educated guesses: they sell part of the portfolio to pay for the expense. Or they sell new (or treasury) shares on the market.