Today on Trend Following Radio Michael Covel talks with Lawrence McMillan of McMillan Analysis Corporation. The topic of discussion is options, their value in terms of overall strategy, and how their trading has evolved over the preceding decades.
The conversation opens with Lawrence talking about his days at historic Bell Labs – a research company founded in the 19th century by Alexander Graham Bell – and the initial difficulty in working with options due to their complicated nature and the level of technology required. Later, Michael asks Lawrence to talk about the CBOE Volatility Index (VIX) and how, since the subprime crisis of 2008, many are looking at the VIX as long-term insurance for the future. One of the problems with that strategy, as Lawrence points out, is that many people fail to take into account that VIX only measures market expectations for the next 30 days.
Also discussed today are leverage as a financial tool and the concept of the black swan – unforeseen events that have a major impact, but only rationalized after the fact. Lawrence brings decades of experience and wisdom, gain perspective.
In this episode of Trend Following Radio:
- American vs. European-style options
- The logic behind VIX
- Leverage as a tool
- Understanding puts and calls
- Long and short selling
- Examining the subprime mortgage crisis of 2008
“I’m not counting on disaster. I don’t want there to be disaster. I don’t want my house to burn down, but I do want insurance in case it does. That’s our basic strategy.” – Lawrence McMillan
Mentions & Resources:
- Lawrence McMillan
- Bell Labs
- CBOE Volatility Index
- Black swans
- Long-Term Capital Management
- The Journal of Finance
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