Intro Finance


1. Stocks

From Investopedia - A stock is a form of security that indicates the holder has proportionate ownership in the issuing corporation. - Corporations issue (sell) stock to raise funds to operate their businesses. There are two main types of stock: common and preferred. - Stocks are bought and sold predominantly on stock exchanges, though there can be private sales as well, and they are the foundation of nearly every portfolio. - Historically, they have outperformed most other investments over the long run. - Stocks are quoted on exchanges. The current market price is referred to as the spot price of the stock. - A good primer on finance and the stock market is Malkiel’s A Random Walk Down Wall Street.

Date Close High Low Open volume adjClose adjHigh adjLow adjOpen adjVolume divCash splitFactor
2020-01-23 1486.65 1495.52 1482.1 1487.64 1351354 1486.65 1495.52 1482.1 1487.64 1351354 0.0 1.0
2020-01-22 1485.95 1503.21 1484.93 1491.0 1610846 1485.95 1503.21 1484.93 1491.0 1610846 0.0 1.0
2020-01-21 1484.4 1491.85 1471.2 1479.12 2008830 1484.4 1491.85 1471.2 1479.12 2008830 0.0 1.0
2020-01-17 1480.39 1481.3 1458.22 1462.91 2396215 1480.39 1481.3 1458.22 1462.91 2396215 0.0 1.0
2020-01-16 1451.7 1451.99 1440.92 1447.44 1173688 1451.7 1451.99 1440.92 1447.44 1173688 0.0 1.0
2020-01-15 1439.2 1441.39 1430.21 1430.21 1282685 1439.2 1441.39 1430.21 1430.21 1282685 0.0 1.0
2020-01-14 1430.88 1441.8 1428.37 1439.01 1560453 1430.88 1441.8 1428.37 1439.01 1560453 0.0 1.0
2020-01-13 1439.23 1440.52 1426.02 1436.13 1378286 1439.23 1440.52 1426.02 1436.13 1378286 0.0 1.0
2020-01-10 1429.73 1434.93 1418.35 1427.56 1821566 1429.73 1434.93 1418.35 1427.56 1821566 0.0 1.0

Date AAPL GOOG IBM MSFT TSLA
2020-01-16 315.24 1451.7 137.98 166.17 513.49
2020-01-17 318.73 1480.39 138.31 167.1 510.5
2020-01-21 316.57 1484.4 139.17 166.5 547.2
2020-01-22 317.7 1485.95 143.89 165.7 569.56
2020-01-23 319.23 1486.65 142.87 166.72 572.2

Key concepts

Std
AAPL 48.92
GOOG 233.32
IBM 10.55
MSFT 34.19
TSLA 61.32

Lets look at the daily returns for each symbol.

Date AAPL GOOG IBM MSFT TSLA
2020-01-16 0.0125 0.0087 0.0099 0.0183 -0.0097
2020-01-17 0.0111 0.0198 0.0024 0.0056 -0.0058
2020-01-21 -0.0068 0.0027 0.0062 -0.0036 0.0719
2020-01-22 0.0036 0.0010 0.0339 -0.0048 0.0409
2020-01-23 0.0048 0.0005 -0.0071 0.0062 0.0046

Std
AAPL 0.0156
GOOG 0.0151
IBM 0.0129
MSFT 0.0147
TSLA 0.0285

Indeces and ETFs

Index

ETF

2. Options

From Investopedia

Option contracts specify the following parts:

\(S\) - Underlying asset
\(K\) - Strike price
\(\text{Expiration}\) - Days to expiration (dte)
\(\text{Price}\) - Price of the option, also called premium

Key concepts

Calls

Puts

Selling options

Selling calls

Selling puts

underlying underlying_last optionroot type expiration quotedate strike last bid ask openinterest impliedvol delta gamma theta vega
13328880 SPX 2257.83 SPX170120C00100000 call 2017-01-20 2017-01-03 100.0 2161.5 2154.3 2158.7 5615 0.1214 1.0 0.0 -1.0239 0.0
13328881 SPX 2257.83 SPX170120C00200000 call 2017-01-20 2017-01-03 200.0 2060.95 2054.4 2058.8 6355 0.1214 1.0 0.0 -2.0479 0.0
13328882 SPX 2257.83 SPX170120C00300000 call 2017-01-20 2017-01-03 300.0 1960.45 1954.4 1958.8 2000 0.1214 1.0 0.0 -3.0718 0.0
13328883 SPX 2257.83 SPX170120C00400000 call 2017-01-20 2017-01-03 400.0 1760.55 1854.6 1858.9 25 0.1214 1.0 0.0 -4.0957 0.0
13328884 SPX 2257.83 SPX170120C00500000 call 2017-01-20 2017-01-03 500.0 1749.33 1754.6 1758.9 3813 0.1214 1.0 0.0 -5.1197 0.0

Number of option contracts.

Options pricing

Options and financial derivatives in general are notoriously difficult to price.
They are related to the volatility of the underlying; that is, options for low volatility assets are less expensive than their counterparts, all else being equal. They also suffer time decay. As they approach expiration, OTM options tend to 0 and ATM and ITM options tend to \(S_t\).

VIX index

Market volatility is measured by the CBOE VIX index. It’s a benchmark index designed specifically to track S&P 500 volatility.
Calculates volatility by averaging the weighted prices of OTM puts and calls using options that expire in 16 and 44 days.

\[\text{VIX} = 100 * \sigma\]

Date
Price
1990-01-02 359.69
1990-01-03 358.76
1990-01-04 355.66
1990-01-05 352.20
1990-01-08 353.79

3. Option combinations

Straddle

In the following chart, we buy straddles on SPX using options with 60 dte (with a tolerance level of 10%) and exit the trade 2 days before expiration.

Strangle