An extreme loss event in the stock market refers to a sudden and significant decline in stock prices, often resulting from unexpected and severe market conditions.
Interesting article and paper. I find this to be quite common anecdotally from observing markets over the years. It's a dead cat bounce so to speak. I presume managers take advantage of this to some extent within their strategies. It's a long period of time (1950-2019) so I wonder whether the later portion of the period under study has exhibited less opportunity.
As a retail investor I take advantage of this phenomenon on the options side by selling cash-secured puts on stocks that I perceive to be overvalued but would like to own at lower prices - if my thesis remains intact post-event. The extreme loss provides a double benefit in the option premium from the higher IV plus the lower share price.
The strategy was replicated with recent data, but the results didn't look quite good as the one shown in the paper. Selling a cash secured put is a good strat, provided the fundamentals are solid and remain intact
Thanks for the response Nam! That makes sense. Yes, I would also encourage investors to write puts only on companies with solid fundamentals and that you are comfortable with owning at that strike price.
Interesting article and paper. I find this to be quite common anecdotally from observing markets over the years. It's a dead cat bounce so to speak. I presume managers take advantage of this to some extent within their strategies. It's a long period of time (1950-2019) so I wonder whether the later portion of the period under study has exhibited less opportunity.
As a retail investor I take advantage of this phenomenon on the options side by selling cash-secured puts on stocks that I perceive to be overvalued but would like to own at lower prices - if my thesis remains intact post-event. The extreme loss provides a double benefit in the option premium from the higher IV plus the lower share price.
The strategy was replicated with recent data, but the results didn't look quite good as the one shown in the paper. Selling a cash secured put is a good strat, provided the fundamentals are solid and remain intact
Thanks for the response Nam! That makes sense. Yes, I would also encourage investors to write puts only on companies with solid fundamentals and that you are comfortable with owning at that strike price.
Selling cash secured puts on dividend aristocrats is a good strategy.