Investing information and frequently asked questions
Through August 7, 2022 (1 year or 253 trading days):
Riskfree rate = 2.50%
Actual SPY return = -4.88%
Use floor S&P500 rate = 10.00%
Actual IWM return = -11.58%
Use floor Russell 2000 rate = 10.00%
Actual QQQ return = -12.09%
Use floor NASDAQ 100 rate = 10.00%
===========================================
Market return = 7.50%
Riskfree rate = 2.50%
Actual SPY return = -4.88%
Use floor S&P500 rate = 10.00%
Actual IWM return = -11.58%
Use floor Russell 2000 rate = 10.00%
Actual QQQ return = -12.09%
Use floor NASDAQ 100 rate = 10.00%
===========================================
Market return = 7.50%
Where we go for 'free' market data...info about stocks, bonds, options, filings and news.
0. FINRA (good corporate bond data here)
http://finra-markets.morningstar.com/BondCenter/Default.jsp
1. Fintel.io
https://fintel.io/
2. Yahoo Finance
https://finance.yahoo.com/
3. Seeking Alpha
https://seekingalpha.com/
4. Finviz
https://finviz.com/
5. Koyfin
https://www.koyfin.com/
6. CBOE Top of the book viewer
http://markets.cboe.com/us/equities/market_statistics/book/SMLP/
7. Your broker (ours is very helpful with data, quotes and educational materials)
8. Stocktwits (funny sometimes, but a great community. I find 'friends' and pumpers here.)
https://stocktwits.com/symbol/smlp
9. Google Finance
https://www.google.com/finance
10. Securities and Exchange Commission (EDGAR)
We search 'SEC EDGAR SEARCH' then enter the ticker symbol in the search box.
https://www.sec.gov/
11. MarketWatch
https://www.marketwatch.com/
12. NASDAQ
https://www.nasdaq.com/
13. Investing.com (lots of tools and charts)
https://www.investing.com/
14. The Options Clearing Corp
https://www.theocc.com/
15. CBOE Options Quotes (delayed)
https://www.cboe.com/delayed_quotes/smlp/quote_table
16. CBOE Options Historical Information
https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Daily-Volume
17. How many shares can somebody borrow and sell short?
IBorrowDesk: https://iborrowdesk.com/report/SMLP
Shortable Stocks: https://www.shortablestocks.com/?smlp
18. Black Scholes Options Pricing Calculator
https://www.mystockoptions.com/black-scholes.cfm (options price calculator based on actual volatility)
http://www.option-price.com/implied-volatility.php (implied volatility calculator, based on option price)
19. National Stock Exchange of India (NSE) and the NIFTY 50
For stock information, start at their homepage. We had trouble creating a 2 month daily chart.
20. Stock Market MBA (cool site, lots of facts):
https://stockmarketmba.com/index.php
21. US Government Bond Yields (from 1 month to 30 years)
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield
22. How do I find the short interest in a stock. Go to Short Squeeze . com:
https://shortsqueeze.com//shortinterest/stock/term2.php?s=SMLP
23. How do we find the Level 2 quotes for a stock? This one costs $15/month to NASDAQ. Here.
https://datastore.nasdaq.com/default.aspx
24. News and alerts on stocks. Good info, was surprised how good! Here.
https://docoh.com/
0. FINRA (good corporate bond data here)
http://finra-markets.morningstar.com/BondCenter/Default.jsp
1. Fintel.io
https://fintel.io/
2. Yahoo Finance
https://finance.yahoo.com/
3. Seeking Alpha
https://seekingalpha.com/
4. Finviz
https://finviz.com/
5. Koyfin
https://www.koyfin.com/
6. CBOE Top of the book viewer
http://markets.cboe.com/us/equities/market_statistics/book/SMLP/
7. Your broker (ours is very helpful with data, quotes and educational materials)
8. Stocktwits (funny sometimes, but a great community. I find 'friends' and pumpers here.)
https://stocktwits.com/symbol/smlp
9. Google Finance
https://www.google.com/finance
10. Securities and Exchange Commission (EDGAR)
We search 'SEC EDGAR SEARCH' then enter the ticker symbol in the search box.
https://www.sec.gov/
11. MarketWatch
https://www.marketwatch.com/
12. NASDAQ
https://www.nasdaq.com/
13. Investing.com (lots of tools and charts)
https://www.investing.com/
14. The Options Clearing Corp
https://www.theocc.com/
15. CBOE Options Quotes (delayed)
https://www.cboe.com/delayed_quotes/smlp/quote_table
16. CBOE Options Historical Information
https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Daily-Volume
17. How many shares can somebody borrow and sell short?
IBorrowDesk: https://iborrowdesk.com/report/SMLP
Shortable Stocks: https://www.shortablestocks.com/?smlp
18. Black Scholes Options Pricing Calculator
https://www.mystockoptions.com/black-scholes.cfm (options price calculator based on actual volatility)
http://www.option-price.com/implied-volatility.php (implied volatility calculator, based on option price)
19. National Stock Exchange of India (NSE) and the NIFTY 50
For stock information, start at their homepage. We had trouble creating a 2 month daily chart.
20. Stock Market MBA (cool site, lots of facts):
https://stockmarketmba.com/index.php
21. US Government Bond Yields (from 1 month to 30 years)
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield
22. How do I find the short interest in a stock. Go to Short Squeeze . com:
https://shortsqueeze.com//shortinterest/stock/term2.php?s=SMLP
23. How do we find the Level 2 quotes for a stock? This one costs $15/month to NASDAQ. Here.
https://datastore.nasdaq.com/default.aspx
24. News and alerts on stocks. Good info, was surprised how good! Here.
https://docoh.com/
These are sites we use for 'free' stock market news.
1. Zero Hedge: Insightful at times, and when not...sometimes clever
https://www.zerohedge.com/
2. Yahoo Finance World Indices (how all the markets are doing)
https://finance.yahoo.com/world-indices
3. SEC Company Lookup (corporate filing = news, without the spin)
https://sec.report/CIK/
4. Koyfin News
https://app.koyfin.com/news/top
5. Finviz News & BLOGS
https://finviz.com/news.ashx
6. Seeking Alpha News
https://seekingalpha.com/market-news
1. Zero Hedge: Insightful at times, and when not...sometimes clever
https://www.zerohedge.com/
2. Yahoo Finance World Indices (how all the markets are doing)
https://finance.yahoo.com/world-indices
3. SEC Company Lookup (corporate filing = news, without the spin)
https://sec.report/CIK/
4. Koyfin News
https://app.koyfin.com/news/top
5. Finviz News & BLOGS
https://finviz.com/news.ashx
6. Seeking Alpha News
https://seekingalpha.com/market-news
What are some of the important parameters of your Chicago Quantum Net Score model runs currently?
Stock Market Questions
Why are recessions bad for stock prices?
Because recessions make companies unprofitable. Profitability is a key dividing line for stocks Stocks of unprofitable companies trade now at lower prices and with higher price variance.
What is a failure to deliver in stocks?
This is when an options trade settles, and one participation lacks the cash to carry out their obligation. I almost had this happen once. Say you buy 100 call options and the stock goes up above the strike price. You need to buy 100 x 100 = 10,000 shares at the call price. You were probably thinking you would settle the contract before the end of the day.
Another failure to deliver is if you buy or sell the stock, but cannot deliver it. This happens with naked shorting sometimes. $FATH is a stock with tight supply (a new company, a SPAC, that is very volatile). The stocks with tight supply get 'bid up' and 'bid down' based on phantom stock volumes. These are stocks that are traded, but are never intended to be delivered.
What is the market capitalization of a stock? & What is the market capitalization of a company?
Total market capitalization = equity cap + debt cap. 1. The equity capitalization is the total number of shares of stock multiplied by the market price. So, 1 billion shares that trade at $10, is worth $10 billion. 2. The debt capitalization is the market value of all debt (I use current and non-current debt). We say market value, because some firms' debt trades at a discount to the face value owed.
What is the Debt to Equity Ratio?
This is the market value of debt divided by the market value of equity. A company with equal parts is said to have a 1 D/E ratio. It is not healthy to have too much debt compared to equity, and we have seen this ratio balloon up just prior to distress or bankruptcy.
How do I find the institutional holders of a company?
The Securities and Exchange Commission maintains a system called EDGAR. There are different filings that institutional holders have to make, such as Schedule 13D and 13G/A. It can be challenging to find these SEC filings, because they are based on the owner of the stock, not the company that issued the stock.
What is short-term volatility for a stock?
Say we expect a US liquid stock's intraday price to change within 2% most days, and within 4% almost all days. It is a stock that moves > 4% in the next week.
What is a Gamma Squeeze?
A closed-loop, or virtuous circle where buyers (say a whale, or many small fish) buy short-dated call options. The call option sellers like to hedge, so they buy the underlying stock, like 1:1, like clockwork, no choice really. If this happens enough, the stock price goes up really fast. What happens when the call options expire? Good question...probably have to start over, and the call options become much more expensive to account for hedging risk.
Gamma squeeze can also happen with puts. Buyer(s) buy puts, seller hedges by selling (or shorting) the underlying stock. Price drops, buyer(s) feel more confident, and buy more puts. Rinse and repeat until the short-dated puts expire.
I thought a Gamma Squeeze could start with lots of buyers for a stock. It is not enough...you need buyers of new call options (more than put options).
Where do I find stock quotes?
Yahoo Finance has current (slightly delayed) and historical stock prices, valuations, charting, and other valuable data, here.
Finviz also has delayed stock quotes (free) and charts. Found here.
Stocktwits is a fun site. Occasionally entertaining, but good. Pulse of individual traders. Found here.
What does the adjusted close price mean and how is it calculated in Yahoo Finance?
The adjusted close price takes into account corporate actions that impact the value of the stock. It incorporates stock splits, dividends paid with stock, and dividends paid in cash. It backward adjusts the historical closing price by those actions to smooth out price changes. See Yahoo's definition and math here.
What is Drawdown?
This is when your investment loses value, regardless of if you realize the loss. This is a percentage from where you invested (from 0 to 100% if you lose your entire investment).
What is an ETF? What is an Exchange Traded Fund?
This is a fund that trades just like a stock. It can be bought and sold during the trading day. This is different than a 'real' mutual fund that can only be bought or sold at the closing price that day through the mutual fund company. To show the difference, I can buy and sell the $SPY (S&P 500 ETF) often during the day as the then-current price. However, I have an S&P 500 mutual fund with Vanguard that if I buy or sell it, it 'marks to market' at the 4pm ET close price (Net Asset Value) for that day.
An ETF does not only hold stocks, but may hold a collection of stocks, bonds, options, currencies, and other financial assets. I think of this as a synthetic stock, or a bet on stocks, without holding the underlying stocks.
Where do I find stock news?
Stocktwits is a fun, community based site with one page per stock they cover. Found here.
Hacker News is another good site (yCombinator). Found here.
Zero Hedge is another very good site, more curated news. Found here.
What is the top of the book?
This is the top, or best, 5 bids (to buy) and asks (to sell), with stock prices and number of shares. You can also see the last 5 or 10 trades made (number of shares, and prices). These are bona-fide orders to trade (meaning they can be executed immediately). It shows liquidity, or a sense of the money ready to trade in the ticker.
You can find the free CBOE top of the book, or book viewer, here. Just change the ticker in the URL.
You can find the free IEX top of the book, or book viewer, here. This one you type in the ticker on the page.
NASDAQ has a book viewer for their book, but it requires a paid subscription.
What is a short squeeze?
A short 'squeeze' happens when when investors that borrowed stocks to sell ('shorts') have to buy them back under pressure. The rising price and unavailability of shares to borrow means shorts have to buy back the shares now. A recent example is $GME (Gamestop).
What is an Efficient Portfolio?
An efficient portfolio is based on historical price data (e.g., 1 year) and had the most expected return (profit) for a level of price variability (risk). This trend may continue into the future. Risks are often diversified.
What is a portfolio's Expected Return?
A portfolio's Expected Return in our model is the average BETA value of the portfolio's stocks multiplied by the annual Market Return.
What is BETA for a stock?
BETA is the movement of a stock relative to moves of a market index. We use SPY or QQQ, S&P 500 and NASDAQ 100 index tracking ETFs. BETA of 1.0 means stock moves 1:1 with market ups & downs: 2.0 moves 2:1, 0.5 moves 1:2, -1 moves opposite.
BETA in our model is the movement of a stock relative to a market index. We offer two choices, either $SPY, an ETF that tracks the S&P 500 or $QQQ, an ETF that tracks the NASDAQ 100.
What is BETA Exposure?
BETA exposure is the BETA values of stocks that you own, in a weighted average. This is a measure of portfolio momentum & risk. If you expect a 20% market return, 1% risk-free in 2021, a portfolio BETA of 2.0 expects ~ 39% return.
What is Swing Trading?
The term is based on the average time an investor holds a position in a stock. A stock market investor who trades in terms of days or weeks. Slow than a day-trader (in & out during one day). Faster than a buy & hold investor (months or years)
What is Alpha (in stocks)?
Alpha is the ability of an investment manager to outperform the best results of market indexes (e.g., SPY, QQQ, & IWM) and optimal portfolio allocation between types of assets. It's the return of an investment manager. Hard to do.
Why should you put 'zig and zag' in your stock portfolio?
A) A portfolio where every stock moves in the same way with the market...just moves with the market. There is no protection when the market falls, and no upside when the market rises. Instead of holding a highly diversified portfolio with dozens of stocks that move with the market, it is often better to hold a passive mutual fund or exchange traded fund (ETF) that tracks the market.
B) However, if you can find stocks that generally move with the market, have a higher BETA (and BETA exposure) so they move more than the market (e.g., provide leverage), and some rise when others fall, then you can hold a portfolio with more potential to earn profits than the market, and reduce the risk of just holding the passive market (with leverage). The zigs and zags, or ups and downs of stocks against each other lower the overall price volatility you hold.
How many US stock market trading days in the past year?
It depends on the day asked. In a year, there are ~253 days when the US stock markets will open for trading. So, if we download 1-year of data, we get 252 or 253 daily data points.
What are the three NASDAQ stock markets (exchanges)?
Each have different listing requirements.
What is an equally weighted stock portfolio?
A portfolio where each stock starts with the same amount invested. So, a portfolio with 2 stocks has half invested in each. Another is capitalization weighted, which set the investment equal to the % of market value of each stock. So, a $1.00 portfolio with 2 stocks would have $0.50 invested in each.
What is a stock portfolio's variance?
The variance of a portfolio is the amount of variability of the price change of that portfolio's stock price over the measurement period. People usually think of a 'bell shaped curve' in a random sample, with the highest point being the typical return, and the variance is how wide the bell is. Most investors prefer higher returns with lower variance (so they don't have many 'bad days'). The amount of spread or width of the daily price change of a portfolio's value that we interpret to mean the potential changes we expect on typical, future days.
When is a stock really a bond?
When it is a bond listed on the NYSE (as a stock): $TVC and $TVE are Tennessee Valley Authority PARRS bonds, $25 putable bonds yielding ~2.2% per annum. These are listed and traded on the NYSE.
Why list $25 bonds like stocks? To make it easier for individual investors to buy a bond, and to try and profit from interest rate changes. https://tva.q4ir.com/investment-opportunities/putable-automatic-rate-reset-securities/default.aspx
What does it mean with BETA < 0 (a negative number)?
It means that a stock has moved in the opposite direction to a market index. So, when the stock market goes up, these stocks go down. We don't like negative BETA stocks, because the market almost always goes up, and this is investing to lose money (most of the time). In other cases, there has been a significant and sustained rise or fall in stock price that is uncorrelated to the market index (and indicates a 'story stock'). BTW, we use the ETFs $QQQ or $SPY, and before used the indices themselves to calculate BETA.
What is an adjusted option?
Every option has a few immutables, like call/put, American/European option, but the rest can change. If a corporate event occurs, the strike price, date, and even number of shares can change. You need the information notice from the OCC to be sure you know how the 'adjustment' works.
The Options Clearing Corporation (The OCC) has information on every adjusted option, delivered in information notices, found here. Fidelity has a nice writeup on the topic here.
What do S&P Bond Rating mean?
The Standard and Poor Credit Rating group rates company's ability to pay their debts. Here is a link to definitions.
For example, one stock was upgraded from SD to CCC, which means they went from Selective Default to being Vulnerable.
Front running a trade?
We can all see the trades that are waiting to be made when they hit a certain price, if that price is far from the market price. There is a book viewer for this. If you see someone trying to buy 1000 or 10000 shares at a price, you put your order in front of them (front run them) for say $0.01 or $0.02 below their price. You get executed first, and can turn around and sell it to them...or they have to raise their price due to increased 'buy demand.' I did this today in a slow stock, $SMLP, where I put my 300 share order in $0.02 more expensive than the person waiting at the best price. I got executed first. However, the market dropped about an hour later, and if they waited, they could have bought $0.10 cheaper. Oh well, trading is about buying, selling or watching at that moment.
Long-dated OTM call options
This is a call option (an option to buy shares at a certain price in the future, at a certain date). It is long dated, so you have a few months to execute. It is out of the money (OTM), so you cannot make money if it expired at this price. We are still not sure how to trade these effectively, except to turbo-charge a winning position in a stock that you believe will rise.
Float (for a stock):
The float of a stock are the number of shares freely available to be traded at any one time, times the price of the shares. It does not count restricted or treasury stock (stocks that are legally held back, say for executive compensation or from a buy-back). It does not include closely held stocks, and we do not count stocks held by passive investors (e.g., mutual funds or ETFs) that must hold the stock to maintain an index weighting. For example, say a stock has 10M shares, and trades at $10. The float starts at $100M, with 10M, but then we subtract insiders holding 1M, and passive mutual funds holding 5M shares, and 1M in restricted and treasury stock (bought from the market and 'retired' or 'held' to pay out in bonuses.' This leaves $3M shares. For a stock selling at $10 / share * 3M shares, this leaves a float of $30M.
What is the Average True Range (ATR):
This is a technical indicator of market volatility for a stock, taken over a number of days (say 14 days). Higher number means more volatility in the stock. Investopedia discusses it here. $SMLP has an ATR of 0.97 (14 days), as an example.
What is a hedge fund?
A group of investors they buy stocks that zig while others zag. Imagine a fund with N independent strategies, each 'hopefully' uncorrelated, and all a high IQ team. Imagine 50% long, 50% short. Visualize a trading hypothesis that motivates a team to invest in multiple asset classes to uncover hidden financial value. That is a hedge fund.
What is margin?
A trade that allows you to borrow a percentage of a stock's value from a broker to purchase that stock. If the stock's value drops substantially, you must deposit more cash in the account or sell a portion of the stock.
What is a stock's skewness?
A simple idea is that the skewness is the recent acceleration or momentum in a stock's daily returns. A positive skew probably went up recently. It could have fallen before, and now is recovering. A bigger than normal recent gain (one or over a few days) could make the stock's skew positive. Positive skew feels good, because the stock goes up frequently, but does not mean you make more money than a negatively skewed stock...just that it feels differently.
This is the third movement of a stock's price. It represents whether the probability distribution of a stock's daily returns are balanced. A balanced probability distribution, and a normal distribution, have this property: mean (average) = median (middle in a stack rank) = mode (most common value). A positive skew, when graphed, looks like the bell curve is stretched to the positive (or higher returns) side of the chart. This could be that the price of the stock is artificially propped up (say for a bond with a built-in minimum sell price, like $TVC at $25). A negative skew stretches the bell curve to the negative side, or the loss side.
What is a stock's kurtosis?
The kurtosis is the 4th movement of a stock's price. One way to think of it is the jerkiness or sudden fits and starts that come in the daily stock % price moves. If it normally moves $0.10 in a day...has it moved $1.00 or $5.00 in a day in the past year, either up or down? The kurtosis of a stock is the weight of the tails of the probability distribution of daily returns. Kurtosis is probability of tail events, outliers, or extreme moves. So, a lepto (or fat) kurtic stock had big moves in the past year, up and/or down. Options buyers & YOLO want price action from a high-kurtosis, or leptokurtic stock!
A platykurtic stock has little weight in the tails, so there are fewer outliers or large, unexpected moves than we would see in a normal distribution. So, if a stock normally moves $0.10 in a day, maybe this stock has not seen a $0.50 move in the past year. This seems like a safer stock with less history of bold daily moves.
A mesokurtic stock is more or less normally distributed. We get what we expect, being normally distributed and random.
What is the Annual Market Return?
This is the average of three US stock market indices, subject to floor and ceiling values to remove anomalies. We set a floor because investors do have a minimum expectation of stock market returns. We set a ceiling because investors do not expect a great year to repeat in exactly the same way the next year.
What is the NSE? What is the NSE NIFTY 50?
The National Stock Exchange of India is the NSE, and the NIFTY 50, NIFTY NEXT 50, NIFTY MIDCAP 50, NIFTY BANKS, etc. are a set of indices of companies listed on the Indian market. For more information, click here. They have a seemingly evangelical mission: "We aim to catalyze India's growth story by creating investment opportunities, enabling access and empowering our stakeholders. We work harder, smarter and faster to deliver impact across the investment ecosystem. In a world that changes shape by the second, we constantly reinvent ourselves to redefine the future."
What is the Over the Counter Market? What is the OTC market?
This is where stocks that are not listed on a formal exchange are traded (unlisted stocks). Like a sales counter, two parties trade stocks or other financial instruments directly without brokers. Dealers, and dealer networks in financial instruments act as market makers and quote bid and ask prices. Think of this as a big discord channel, or squawk box, or phone tree where you ask people to buy or sell your stock. This is all happening electronically. There is no price reporting transparency, trades happen between two parties without strict reporting requirements.
A few challenges with OTC include:
What is DXY?
This is the "U.S. Dollar Index (TM)" the ICE, Intercontinental Exchange, Inc., futures index for the U.S. Dollar currency value. It has many names: USDX, DXY, DX, or the "Dixie." The currencies it measures are our primary US trading partners, including Euro, Japanese Yen, UK Pound Sterling, Canadian Dollar, Swedish Krona and Swiss Franc. It was started (as USDX) in March 1973.
How many shares of stock does a company have?
This is something that a company has to publish. However, it may not be easy to find. For SMLP, which is a limited partnership (or an LP for short), we found stock shares, or common units, that were provided by the company. We also have shares that were provided directly to debt holders that may or may not sell them. Finally, we have warrants which can be bought and sold and converted to shares. There are also preferred shares, which often pay a dividend and can be converted into common shares. So, do your homework and know how many shares your company has. In the case of SMLP, there are 6.1M common units (3.8M issues by the company, and 2.3M owned by prior debt holders), 0.7M shares inside warrants which are 'in the money', and about 20,000 preferred shares which are not convertible into common. This number typically excludes hidden or restricted or treasury shares, which are shares that have not been released to the market and may be held for a specific purpose (e.g., stock compensation, stock options exercise, or to grant restricted stock to executives). Treasury stocks can be shares that were bought back from the market and 'disposed of' or taken out of the share count.
Who are the market makers and market participants that you see in the Level 2 book? Who is trading, or making a market, in your favorite stocks? Find the link here.
http://www.nasdaqtrader.com/trader.aspx?id=symbollookup
Where can I get 'FREE' education on the stock market? The US Securities and Exchange Commission publishes great content.
https://www.investor.gov/introduction-investing
Because recessions make companies unprofitable. Profitability is a key dividing line for stocks Stocks of unprofitable companies trade now at lower prices and with higher price variance.
What is a failure to deliver in stocks?
This is when an options trade settles, and one participation lacks the cash to carry out their obligation. I almost had this happen once. Say you buy 100 call options and the stock goes up above the strike price. You need to buy 100 x 100 = 10,000 shares at the call price. You were probably thinking you would settle the contract before the end of the day.
Another failure to deliver is if you buy or sell the stock, but cannot deliver it. This happens with naked shorting sometimes. $FATH is a stock with tight supply (a new company, a SPAC, that is very volatile). The stocks with tight supply get 'bid up' and 'bid down' based on phantom stock volumes. These are stocks that are traded, but are never intended to be delivered.
What is the market capitalization of a stock? & What is the market capitalization of a company?
Total market capitalization = equity cap + debt cap. 1. The equity capitalization is the total number of shares of stock multiplied by the market price. So, 1 billion shares that trade at $10, is worth $10 billion. 2. The debt capitalization is the market value of all debt (I use current and non-current debt). We say market value, because some firms' debt trades at a discount to the face value owed.
What is the Debt to Equity Ratio?
This is the market value of debt divided by the market value of equity. A company with equal parts is said to have a 1 D/E ratio. It is not healthy to have too much debt compared to equity, and we have seen this ratio balloon up just prior to distress or bankruptcy.
How do I find the institutional holders of a company?
The Securities and Exchange Commission maintains a system called EDGAR. There are different filings that institutional holders have to make, such as Schedule 13D and 13G/A. It can be challenging to find these SEC filings, because they are based on the owner of the stock, not the company that issued the stock.
What is short-term volatility for a stock?
Say we expect a US liquid stock's intraday price to change within 2% most days, and within 4% almost all days. It is a stock that moves > 4% in the next week.
What is a Gamma Squeeze?
A closed-loop, or virtuous circle where buyers (say a whale, or many small fish) buy short-dated call options. The call option sellers like to hedge, so they buy the underlying stock, like 1:1, like clockwork, no choice really. If this happens enough, the stock price goes up really fast. What happens when the call options expire? Good question...probably have to start over, and the call options become much more expensive to account for hedging risk.
Gamma squeeze can also happen with puts. Buyer(s) buy puts, seller hedges by selling (or shorting) the underlying stock. Price drops, buyer(s) feel more confident, and buy more puts. Rinse and repeat until the short-dated puts expire.
I thought a Gamma Squeeze could start with lots of buyers for a stock. It is not enough...you need buyers of new call options (more than put options).
Where do I find stock quotes?
Yahoo Finance has current (slightly delayed) and historical stock prices, valuations, charting, and other valuable data, here.
Finviz also has delayed stock quotes (free) and charts. Found here.
Stocktwits is a fun site. Occasionally entertaining, but good. Pulse of individual traders. Found here.
What does the adjusted close price mean and how is it calculated in Yahoo Finance?
The adjusted close price takes into account corporate actions that impact the value of the stock. It incorporates stock splits, dividends paid with stock, and dividends paid in cash. It backward adjusts the historical closing price by those actions to smooth out price changes. See Yahoo's definition and math here.
What is Drawdown?
This is when your investment loses value, regardless of if you realize the loss. This is a percentage from where you invested (from 0 to 100% if you lose your entire investment).
What is an ETF? What is an Exchange Traded Fund?
This is a fund that trades just like a stock. It can be bought and sold during the trading day. This is different than a 'real' mutual fund that can only be bought or sold at the closing price that day through the mutual fund company. To show the difference, I can buy and sell the $SPY (S&P 500 ETF) often during the day as the then-current price. However, I have an S&P 500 mutual fund with Vanguard that if I buy or sell it, it 'marks to market' at the 4pm ET close price (Net Asset Value) for that day.
An ETF does not only hold stocks, but may hold a collection of stocks, bonds, options, currencies, and other financial assets. I think of this as a synthetic stock, or a bet on stocks, without holding the underlying stocks.
Where do I find stock news?
Stocktwits is a fun, community based site with one page per stock they cover. Found here.
Hacker News is another good site (yCombinator). Found here.
Zero Hedge is another very good site, more curated news. Found here.
What is the top of the book?
This is the top, or best, 5 bids (to buy) and asks (to sell), with stock prices and number of shares. You can also see the last 5 or 10 trades made (number of shares, and prices). These are bona-fide orders to trade (meaning they can be executed immediately). It shows liquidity, or a sense of the money ready to trade in the ticker.
You can find the free CBOE top of the book, or book viewer, here. Just change the ticker in the URL.
You can find the free IEX top of the book, or book viewer, here. This one you type in the ticker on the page.
NASDAQ has a book viewer for their book, but it requires a paid subscription.
What is a short squeeze?
A short 'squeeze' happens when when investors that borrowed stocks to sell ('shorts') have to buy them back under pressure. The rising price and unavailability of shares to borrow means shorts have to buy back the shares now. A recent example is $GME (Gamestop).
What is an Efficient Portfolio?
An efficient portfolio is based on historical price data (e.g., 1 year) and had the most expected return (profit) for a level of price variability (risk). This trend may continue into the future. Risks are often diversified.
What is a portfolio's Expected Return?
A portfolio's Expected Return in our model is the average BETA value of the portfolio's stocks multiplied by the annual Market Return.
What is BETA for a stock?
BETA is the movement of a stock relative to moves of a market index. We use SPY or QQQ, S&P 500 and NASDAQ 100 index tracking ETFs. BETA of 1.0 means stock moves 1:1 with market ups & downs: 2.0 moves 2:1, 0.5 moves 1:2, -1 moves opposite.
BETA in our model is the movement of a stock relative to a market index. We offer two choices, either $SPY, an ETF that tracks the S&P 500 or $QQQ, an ETF that tracks the NASDAQ 100.
What is BETA Exposure?
BETA exposure is the BETA values of stocks that you own, in a weighted average. This is a measure of portfolio momentum & risk. If you expect a 20% market return, 1% risk-free in 2021, a portfolio BETA of 2.0 expects ~ 39% return.
What is Swing Trading?
The term is based on the average time an investor holds a position in a stock. A stock market investor who trades in terms of days or weeks. Slow than a day-trader (in & out during one day). Faster than a buy & hold investor (months or years)
What is Alpha (in stocks)?
Alpha is the ability of an investment manager to outperform the best results of market indexes (e.g., SPY, QQQ, & IWM) and optimal portfolio allocation between types of assets. It's the return of an investment manager. Hard to do.
Why should you put 'zig and zag' in your stock portfolio?
A) A portfolio where every stock moves in the same way with the market...just moves with the market. There is no protection when the market falls, and no upside when the market rises. Instead of holding a highly diversified portfolio with dozens of stocks that move with the market, it is often better to hold a passive mutual fund or exchange traded fund (ETF) that tracks the market.
B) However, if you can find stocks that generally move with the market, have a higher BETA (and BETA exposure) so they move more than the market (e.g., provide leverage), and some rise when others fall, then you can hold a portfolio with more potential to earn profits than the market, and reduce the risk of just holding the passive market (with leverage). The zigs and zags, or ups and downs of stocks against each other lower the overall price volatility you hold.
How many US stock market trading days in the past year?
It depends on the day asked. In a year, there are ~253 days when the US stock markets will open for trading. So, if we download 1-year of data, we get 252 or 253 daily data points.
What are the three NASDAQ stock markets (exchanges)?
- Nasdaq Global Select Market (SM)
- Nasdaq Global Market (SM)
- Nasdaq Capital Market (SM)
Each have different listing requirements.
What is an equally weighted stock portfolio?
A portfolio where each stock starts with the same amount invested. So, a portfolio with 2 stocks has half invested in each. Another is capitalization weighted, which set the investment equal to the % of market value of each stock. So, a $1.00 portfolio with 2 stocks would have $0.50 invested in each.
What is a stock portfolio's variance?
The variance of a portfolio is the amount of variability of the price change of that portfolio's stock price over the measurement period. People usually think of a 'bell shaped curve' in a random sample, with the highest point being the typical return, and the variance is how wide the bell is. Most investors prefer higher returns with lower variance (so they don't have many 'bad days'). The amount of spread or width of the daily price change of a portfolio's value that we interpret to mean the potential changes we expect on typical, future days.
When is a stock really a bond?
When it is a bond listed on the NYSE (as a stock): $TVC and $TVE are Tennessee Valley Authority PARRS bonds, $25 putable bonds yielding ~2.2% per annum. These are listed and traded on the NYSE.
Why list $25 bonds like stocks? To make it easier for individual investors to buy a bond, and to try and profit from interest rate changes. https://tva.q4ir.com/investment-opportunities/putable-automatic-rate-reset-securities/default.aspx
What does it mean with BETA < 0 (a negative number)?
It means that a stock has moved in the opposite direction to a market index. So, when the stock market goes up, these stocks go down. We don't like negative BETA stocks, because the market almost always goes up, and this is investing to lose money (most of the time). In other cases, there has been a significant and sustained rise or fall in stock price that is uncorrelated to the market index (and indicates a 'story stock'). BTW, we use the ETFs $QQQ or $SPY, and before used the indices themselves to calculate BETA.
What is an adjusted option?
Every option has a few immutables, like call/put, American/European option, but the rest can change. If a corporate event occurs, the strike price, date, and even number of shares can change. You need the information notice from the OCC to be sure you know how the 'adjustment' works.
The Options Clearing Corporation (The OCC) has information on every adjusted option, delivered in information notices, found here. Fidelity has a nice writeup on the topic here.
What do S&P Bond Rating mean?
The Standard and Poor Credit Rating group rates company's ability to pay their debts. Here is a link to definitions.
For example, one stock was upgraded from SD to CCC, which means they went from Selective Default to being Vulnerable.
Front running a trade?
We can all see the trades that are waiting to be made when they hit a certain price, if that price is far from the market price. There is a book viewer for this. If you see someone trying to buy 1000 or 10000 shares at a price, you put your order in front of them (front run them) for say $0.01 or $0.02 below their price. You get executed first, and can turn around and sell it to them...or they have to raise their price due to increased 'buy demand.' I did this today in a slow stock, $SMLP, where I put my 300 share order in $0.02 more expensive than the person waiting at the best price. I got executed first. However, the market dropped about an hour later, and if they waited, they could have bought $0.10 cheaper. Oh well, trading is about buying, selling or watching at that moment.
Long-dated OTM call options
This is a call option (an option to buy shares at a certain price in the future, at a certain date). It is long dated, so you have a few months to execute. It is out of the money (OTM), so you cannot make money if it expired at this price. We are still not sure how to trade these effectively, except to turbo-charge a winning position in a stock that you believe will rise.
Float (for a stock):
The float of a stock are the number of shares freely available to be traded at any one time, times the price of the shares. It does not count restricted or treasury stock (stocks that are legally held back, say for executive compensation or from a buy-back). It does not include closely held stocks, and we do not count stocks held by passive investors (e.g., mutual funds or ETFs) that must hold the stock to maintain an index weighting. For example, say a stock has 10M shares, and trades at $10. The float starts at $100M, with 10M, but then we subtract insiders holding 1M, and passive mutual funds holding 5M shares, and 1M in restricted and treasury stock (bought from the market and 'retired' or 'held' to pay out in bonuses.' This leaves $3M shares. For a stock selling at $10 / share * 3M shares, this leaves a float of $30M.
What is the Average True Range (ATR):
This is a technical indicator of market volatility for a stock, taken over a number of days (say 14 days). Higher number means more volatility in the stock. Investopedia discusses it here. $SMLP has an ATR of 0.97 (14 days), as an example.
What is a hedge fund?
A group of investors they buy stocks that zig while others zag. Imagine a fund with N independent strategies, each 'hopefully' uncorrelated, and all a high IQ team. Imagine 50% long, 50% short. Visualize a trading hypothesis that motivates a team to invest in multiple asset classes to uncover hidden financial value. That is a hedge fund.
What is margin?
A trade that allows you to borrow a percentage of a stock's value from a broker to purchase that stock. If the stock's value drops substantially, you must deposit more cash in the account or sell a portion of the stock.
What is a stock's skewness?
A simple idea is that the skewness is the recent acceleration or momentum in a stock's daily returns. A positive skew probably went up recently. It could have fallen before, and now is recovering. A bigger than normal recent gain (one or over a few days) could make the stock's skew positive. Positive skew feels good, because the stock goes up frequently, but does not mean you make more money than a negatively skewed stock...just that it feels differently.
This is the third movement of a stock's price. It represents whether the probability distribution of a stock's daily returns are balanced. A balanced probability distribution, and a normal distribution, have this property: mean (average) = median (middle in a stack rank) = mode (most common value). A positive skew, when graphed, looks like the bell curve is stretched to the positive (or higher returns) side of the chart. This could be that the price of the stock is artificially propped up (say for a bond with a built-in minimum sell price, like $TVC at $25). A negative skew stretches the bell curve to the negative side, or the loss side.
What is a stock's kurtosis?
The kurtosis is the 4th movement of a stock's price. One way to think of it is the jerkiness or sudden fits and starts that come in the daily stock % price moves. If it normally moves $0.10 in a day...has it moved $1.00 or $5.00 in a day in the past year, either up or down? The kurtosis of a stock is the weight of the tails of the probability distribution of daily returns. Kurtosis is probability of tail events, outliers, or extreme moves. So, a lepto (or fat) kurtic stock had big moves in the past year, up and/or down. Options buyers & YOLO want price action from a high-kurtosis, or leptokurtic stock!
A platykurtic stock has little weight in the tails, so there are fewer outliers or large, unexpected moves than we would see in a normal distribution. So, if a stock normally moves $0.10 in a day, maybe this stock has not seen a $0.50 move in the past year. This seems like a safer stock with less history of bold daily moves.
A mesokurtic stock is more or less normally distributed. We get what we expect, being normally distributed and random.
What is the Annual Market Return?
This is the average of three US stock market indices, subject to floor and ceiling values to remove anomalies. We set a floor because investors do have a minimum expectation of stock market returns. We set a ceiling because investors do not expect a great year to repeat in exactly the same way the next year.
What is the NSE? What is the NSE NIFTY 50?
The National Stock Exchange of India is the NSE, and the NIFTY 50, NIFTY NEXT 50, NIFTY MIDCAP 50, NIFTY BANKS, etc. are a set of indices of companies listed on the Indian market. For more information, click here. They have a seemingly evangelical mission: "We aim to catalyze India's growth story by creating investment opportunities, enabling access and empowering our stakeholders. We work harder, smarter and faster to deliver impact across the investment ecosystem. In a world that changes shape by the second, we constantly reinvent ourselves to redefine the future."
What is the Over the Counter Market? What is the OTC market?
This is where stocks that are not listed on a formal exchange are traded (unlisted stocks). Like a sales counter, two parties trade stocks or other financial instruments directly without brokers. Dealers, and dealer networks in financial instruments act as market makers and quote bid and ask prices. Think of this as a big discord channel, or squawk box, or phone tree where you ask people to buy or sell your stock. This is all happening electronically. There is no price reporting transparency, trades happen between two parties without strict reporting requirements.
A few challenges with OTC include:
- potential lack of liquidity in the shares you are buying and selling can make it challenging to execute a trade at a good price.
- counterparty risk. Who are you trusting to hold up their end of the trade (since there is not a broker). Will there be anybody there to provide bid-ask liquidity when you really need it.
- equity securities traded there may have failed to meet the minimum requirements to list on stock market exchanges like NYSE, NYSE American and NASDAQ Global Select, NASDAQ Global and NASDAQ Capital markets. BTW, all exchange names are trademarks are properties of their owners.
What is DXY?
This is the "U.S. Dollar Index (TM)" the ICE, Intercontinental Exchange, Inc., futures index for the U.S. Dollar currency value. It has many names: USDX, DXY, DX, or the "Dixie." The currencies it measures are our primary US trading partners, including Euro, Japanese Yen, UK Pound Sterling, Canadian Dollar, Swedish Krona and Swiss Franc. It was started (as USDX) in March 1973.
How many shares of stock does a company have?
This is something that a company has to publish. However, it may not be easy to find. For SMLP, which is a limited partnership (or an LP for short), we found stock shares, or common units, that were provided by the company. We also have shares that were provided directly to debt holders that may or may not sell them. Finally, we have warrants which can be bought and sold and converted to shares. There are also preferred shares, which often pay a dividend and can be converted into common shares. So, do your homework and know how many shares your company has. In the case of SMLP, there are 6.1M common units (3.8M issues by the company, and 2.3M owned by prior debt holders), 0.7M shares inside warrants which are 'in the money', and about 20,000 preferred shares which are not convertible into common. This number typically excludes hidden or restricted or treasury shares, which are shares that have not been released to the market and may be held for a specific purpose (e.g., stock compensation, stock options exercise, or to grant restricted stock to executives). Treasury stocks can be shares that were bought back from the market and 'disposed of' or taken out of the share count.
Who are the market makers and market participants that you see in the Level 2 book? Who is trading, or making a market, in your favorite stocks? Find the link here.
http://www.nasdaqtrader.com/trader.aspx?id=symbollookup
Where can I get 'FREE' education on the stock market? The US Securities and Exchange Commission publishes great content.
https://www.investor.gov/introduction-investing
Bond Questions
What is the difference between a US Treasury Bond and a US Treasury Bill?
The difference is the duration. To be a bond, you need a maturity of 1 year. Treasury Bills are sold with maturities of less than 1 year.
What is a 'long bond'?
It is not a 2-hour James Bond movie. A long bond is a bond with a maturity of 5 years or more. So, the US Treasury Department often releases a 30 year maturity bond, then will re-open it to issue more debt, with the same maturity date. So, a 30 year bond can be sold with 25 years left, 20 years left, etc. In any case, a 5 year or longer bond (until maturity) is a long bond.
What is non-recourse debt?
This is when a loan is backed by a specific collateral, and not by other assets of the borrower. When SMLP borrowed $175M to help complete the Double E pipeline, it is non-recourse to SMLP. That means the lenders can seize the pipeline if the debt is not paid, but not go after SMLP in any other way. See example here.
What is an interest rate Yield Curve?
The yield curve is when you chart a line of bond yields from 1 month to 30 years. It looks like a curve that normally slopes up and becomes more steep the longer the bond. The steepness of the yield curve is the difference in interest rates we receive when we lend the US Gov money for a short time vs. a longer time. A common pair: 2-10 year. That 'spread' Feb 25 is 1.37% vs. 0.98% Feb 1. It steepened 39 basis points. Yields for 2-30 year bonds rose.
What is an inverted yield curve?
An inverted yield curve is when investors are paid more interest rate yield to lend the government money for a short time than they receive when the lend for a longer time. This is common before a recession, as people would like to 'park' their capital with a no-risk yield instead of investing it into their business or the financial markets.
What is the difference between a US Treasury Bond and a US Treasury Bill?
The difference is the duration. To be a bond, you need a maturity of 1 year. Treasury Bills are sold with maturities of less than 1 year.
What is a 'long bond'?
It is not a 2-hour James Bond movie. A long bond is a bond with a maturity of 5 years or more. So, the US Treasury Department often releases a 30 year maturity bond, then will re-open it to issue more debt, with the same maturity date. So, a 30 year bond can be sold with 25 years left, 20 years left, etc. In any case, a 5 year or longer bond (until maturity) is a long bond.
What is non-recourse debt?
This is when a loan is backed by a specific collateral, and not by other assets of the borrower. When SMLP borrowed $175M to help complete the Double E pipeline, it is non-recourse to SMLP. That means the lenders can seize the pipeline if the debt is not paid, but not go after SMLP in any other way. See example here.
What is an interest rate Yield Curve?
The yield curve is when you chart a line of bond yields from 1 month to 30 years. It looks like a curve that normally slopes up and becomes more steep the longer the bond. The steepness of the yield curve is the difference in interest rates we receive when we lend the US Gov money for a short time vs. a longer time. A common pair: 2-10 year. That 'spread' Feb 25 is 1.37% vs. 0.98% Feb 1. It steepened 39 basis points. Yields for 2-30 year bonds rose.
What is an inverted yield curve?
An inverted yield curve is when investors are paid more interest rate yield to lend the government money for a short time than they receive when the lend for a longer time. This is common before a recession, as people would like to 'park' their capital with a no-risk yield instead of investing it into their business or the financial markets.
Stock Options Questions
Where do I find summary statistics on the options market (for a given day)?
You go to the CBOE and they publish this data, for free, daily.
https://markets.cboe.com/us/options/market_statistics/daily/
What is an option (stock option)?
A contract that gives you the right or obligation to buy or sell an underlying security (say a stock) at an agreed-upon price on or before a specific date. For example, SMLP options expire either in March 2021, or in June 2021 (in 3 month intervals).
What is a front month option?
The front month option, or the front option, is the next option soonest option that expires.
How does option pricing work? and What would 'break-even' look like for puts and calls?
Short answer: I checked the options pricing on my currently favorite stock, $SMLP, during market close when it was ~$15/share. It was lower, went higher, and came back down in the past few weeks.
The options that expire in 2 months, if you look at last traded options puts and calls prices on Yahoo Finance, here, give a break even range of $36.50 for the calls (up ~$20 or 133%), and $10 for the puts (down$5, or 33%). The prices of the options would not tell you that. Calls were $0.05 apiece, and Puts were $1.78. These are adjusted calls, so I had to go to the OCC for an information notice on SMLP's reverse 15:1 stock split just to do the math, and had to read it a few times.
So, if you buy the call or buy the put, you are betting that the stock will go up 133% or down 33% in the next 2 months.
You know what? I am trying to place that bet (that the stock will rise 133%, over the next 5 months, by bidding $0.05 for the 5 month calls). In this case, $1000 option cost + $100 commission would control 1,400 shares, which would have otherwise cost me $21,000, except then I make money even if the stock goes 0.01% above where I bought it, and I can hold it for my entire life.
This is the short discussion. It could be much longer, cover The Greeks, etc., but this is what most people need to know. You are betting that the stock will jump, alot, in a certain time frame. You can bet up or down by buying calls (up) or puts (down). If the stock moves, you will get a wider spread until you make a profit.
How do we trade options?
We have a formula that looks for options that are less expensive than we believe the underlying stocks warrants, and we buy those options. We do not write covered calls for income (although we should), nor do we buy spreads (which we would if we understood it well enough). We use our Chicago Quantum Net Score model, holistically, to find those under-priced options.
What is the difference between a US Treasury Bond and a US Treasury Bill?
The difference is the duration. To be a bond, you need a maturity of 1 year. Treasury Bills are sold with maturities of less than 1 year.
What is a 'long bond'?
It is not a 2-hour James Bond movie. A long bond is a bond with a maturity of 5 years or more. So, the US Treasury Department often releases a 30 year maturity bond, then will re-open it to issue more debt, with the same maturity date. So, a 30 year bond can be sold with 25 years left, 20 years left, etc. In any case, a 5 year or longer bond (until maturity) is a long bond.
Where do I find summary statistics on the options market (for a given day)?
You go to the CBOE and they publish this data, for free, daily.
https://markets.cboe.com/us/options/market_statistics/daily/
What is an option (stock option)?
A contract that gives you the right or obligation to buy or sell an underlying security (say a stock) at an agreed-upon price on or before a specific date. For example, SMLP options expire either in March 2021, or in June 2021 (in 3 month intervals).
What is a front month option?
The front month option, or the front option, is the next option soonest option that expires.
How does option pricing work? and What would 'break-even' look like for puts and calls?
Short answer: I checked the options pricing on my currently favorite stock, $SMLP, during market close when it was ~$15/share. It was lower, went higher, and came back down in the past few weeks.
The options that expire in 2 months, if you look at last traded options puts and calls prices on Yahoo Finance, here, give a break even range of $36.50 for the calls (up ~$20 or 133%), and $10 for the puts (down$5, or 33%). The prices of the options would not tell you that. Calls were $0.05 apiece, and Puts were $1.78. These are adjusted calls, so I had to go to the OCC for an information notice on SMLP's reverse 15:1 stock split just to do the math, and had to read it a few times.
So, if you buy the call or buy the put, you are betting that the stock will go up 133% or down 33% in the next 2 months.
You know what? I am trying to place that bet (that the stock will rise 133%, over the next 5 months, by bidding $0.05 for the 5 month calls). In this case, $1000 option cost + $100 commission would control 1,400 shares, which would have otherwise cost me $21,000, except then I make money even if the stock goes 0.01% above where I bought it, and I can hold it for my entire life.
This is the short discussion. It could be much longer, cover The Greeks, etc., but this is what most people need to know. You are betting that the stock will jump, alot, in a certain time frame. You can bet up or down by buying calls (up) or puts (down). If the stock moves, you will get a wider spread until you make a profit.
How do we trade options?
We have a formula that looks for options that are less expensive than we believe the underlying stocks warrants, and we buy those options. We do not write covered calls for income (although we should), nor do we buy spreads (which we would if we understood it well enough). We use our Chicago Quantum Net Score model, holistically, to find those under-priced options.
What is the difference between a US Treasury Bond and a US Treasury Bill?
The difference is the duration. To be a bond, you need a maturity of 1 year. Treasury Bills are sold with maturities of less than 1 year.
What is a 'long bond'?
It is not a 2-hour James Bond movie. A long bond is a bond with a maturity of 5 years or more. So, the US Treasury Department often releases a 30 year maturity bond, then will re-open it to issue more debt, with the same maturity date. So, a 30 year bond can be sold with 25 years left, 20 years left, etc. In any case, a 5 year or longer bond (until maturity) is a long bond.
Commodities questions
Where do I find Natural Gas definitions?
U.S. Energy Information Administration produced data and information on this commodity, here.
What is Dry Production of Natural Gas?
Marketed production (gross) minus losses during production. In February, 102 Bcf/d produced 90, for a production loss of 11%.
U.S. Energy Information Administration produced data and information on this commodity, here.
What is Dry Production of Natural Gas?
Marketed production (gross) minus losses during production. In February, 102 Bcf/d produced 90, for a production loss of 11%.
Chicago Quantum Net Score (CQNS) Questions
What is the Chicago Quantum Net Score?
The Chicago Quantum Net Score is a proprietary quantum algorithm that scores each equally weighted portfolio. It has 2 parts that are subtracted from each other:
To make the model work correctly, we set the CQNS value for no stocks and all the stocks at approximately zero. We search for the lowest CQNS value. Based on the stocks you provide, the balance between risk and reward is set and the model seeks the most return with the least risk. This is also called an efficient portfolio, because you cannot get more expected return for the same amount of risk.
Why do you focus on variance and expected returns?
Markets and investors prefer stocks with lower variance in prices given a certain expectation of returns. Market participants will provide greater liquidity for stocks with lower price variance, which makes them easier and less costly to trade. We find that in the short-term, stocks with higher variance for a given expected return underperform the market, all else being equal. From a behavioral view, investors generally prefer to avoid losses in achieving their financial objectives. A loss hurts more than a gain, so investing in stocks with less volatility 'should' reduce drawdowns and losses.
What is your platform of classical solvers that you will use?
The following classical solvers are included in this service:
Where do you source your market data?
We purchase our data from Intrinio and use their Python API calls to download fresh data for every analysis. This is a professional service provider.
How do you validate stock data?
We validate your data by checking different conditions:
Why is CQNS a quantum algorithm?
The traditional way of finding efficient portfolios, or those portfolios that are expected to deliver a maximum return for a given level of risk, is to use the Sharpe Ratio. This divides expected return (%) by the standard deviation of the returns (%). This ratio is simple, as we divide two percentages to get a real number (say 5.10). A quantum annealing computer cannot perform multiplication or division, so we need to reformulate the Sharpe Ratio into something that works similarly. Our formulation works on quantum annealing computers, and therefore is a quantum algorithm.
How many stocks do you analyze?
We start with a composite list of US listed stocks (or tickers) that traded that day. That number has been running over 11,000 each day. We then apply our data validation filters and find ~ 1,300 stocks in the "DOWN" run and ~ 2,000 stocks in the "UP" run.
Observation on portfolio sizes:
Our "DOWN" portfolios are smaller than our "UP" portfolios. This is because diversification helps the investor to reduce their risk. Diversification reduces the CQNS scores of "Down" or short positions. Diversification also reduces the benefit of "UP" run CQNS scores, which is why we find stocks that work together to improve their CQNS scores (they complement each other).
Please describe the solver types that you use?
The best way is to point you to Wikipedia, after we give you a few 'plain English' words of explanation of each.
Quantum Annealer - Uses quantum energy level (think of atoms jumping around trying to find their 'groove'). When we start, atoms are still and are loaded with data. As the atoms heat up, they jump around and seek out the lowest energy level where they can settle in, which equates to the lowest CQNS score. As the system cools, the atoms become more still and only look in their immediate area. Finally, we stop and read the qubits, calculate the CQNS scores and whether the portfolio found was valid, and we keep the valid portfolios.
* we run the quantum annealer in certain situations...not all the time.
Monte Carlo - roll the dice, purely random chance
Simulated Annealing - based on temperature. When it is hot, we search more widely. As it gets colder we focus our search.
Genetic Algorithm - based on taking the best parts of each portfolio and creating new portfolios. Should always move us to better solutions. Add in mutations to capture 'nearby' portfolios.
Simulated Bifurcator - we simulate a pressure chamber. We form portfolios by having individual stocks migrate to be either in or out of the portfolios. We push the stocks in, and pull them out, and the pressure is the amount of impact applied from the matrix of data we created. We are looking for convergence as the pressure increases.
Particle Swarm Optimization - we have a set of particles that are each starting out in different parts of the portfolio search space (the 2^64 search space). Each one finds the best answer per turn, and the group of particles has momentum attracting all particles towards the center of gravity of the best answers. Over time, the particles settle into their best local solutions, and the center of gravity also moves to the best local solution found.
TABU (Multi-Start) - This one seems to operate mostly randomly with the best answers found collected and stored in memory for the next iteration. We generally do not find better answers than we find in a Monte Carlo run.
Greedy (steepest gradient descent) - imagine you are atop a mountain and want to find the deepest valley. You can step around you...so you feel around with your toe, and pick the way that goes down the most. Step that direction, then repeat with your toe. At some point, you stop going down in any direction, and then you stop.
Chicago Quantum Value Proposition:
Disclosures
We think investors should perform due diligence on stocks and ensure they understand the risks associated with equities investing. We do not guarantee investment results.
Our algorithm and methods are subject to change. They can be tuned to meet client needs and tastes. For example, we can adjust the risk parameter in the model, along with data validation limits and profitability constraints. We can add available financial metrics to our data validation process.
The Chicago Quantum Net Score is a proprietary quantum algorithm that scores each equally weighted portfolio. It has 2 parts that are subtracted from each other:
- expected return of the portfolio (based on the BETA of the stocks and the average market return for the measurement period, usually ~ 252 trading days)
- expected risk (or variance) of the portfolio (based on the variance of that portfolio for the measurement period)
To make the model work correctly, we set the CQNS value for no stocks and all the stocks at approximately zero. We search for the lowest CQNS value. Based on the stocks you provide, the balance between risk and reward is set and the model seeks the most return with the least risk. This is also called an efficient portfolio, because you cannot get more expected return for the same amount of risk.
Why do you focus on variance and expected returns?
Markets and investors prefer stocks with lower variance in prices given a certain expectation of returns. Market participants will provide greater liquidity for stocks with lower price variance, which makes them easier and less costly to trade. We find that in the short-term, stocks with higher variance for a given expected return underperform the market, all else being equal. From a behavioral view, investors generally prefer to avoid losses in achieving their financial objectives. A loss hurts more than a gain, so investing in stocks with less volatility 'should' reduce drawdowns and losses.
What is your platform of classical solvers that you will use?
The following classical solvers are included in this service:
- Quantum Annealer*
- Monte Carlo
- Simulated Annealing
- Genetic Algorithm
- Simulated Bifurcator
- Particle Swarm Optimization
- TABU (Multi-Start)
- Greedy (steepest gradient descent)
Where do you source your market data?
We purchase our data from Intrinio and use their Python API calls to download fresh data for every analysis. This is a professional service provider.
How do you validate stock data?
We validate your data by checking different conditions:
- Adjusted close prices are in an acceptable range
- Ticker traded every day for the past year
- Stocks with a positive BETA, and a limit of BETA < 4.0.
- Market capitalization (default $100M or above)
- Common stock or MLP (not an ETF, fund, SPAC, BDC, etc.)
- Positive net income.
- We can and do add data validation steps as we refine our analysis. For example, we can add positive cash flow and adjust market capitalization levels. If you can think of a new data validation filter, we can code it (as long as Intrinio has the data).
Why is CQNS a quantum algorithm?
The traditional way of finding efficient portfolios, or those portfolios that are expected to deliver a maximum return for a given level of risk, is to use the Sharpe Ratio. This divides expected return (%) by the standard deviation of the returns (%). This ratio is simple, as we divide two percentages to get a real number (say 5.10). A quantum annealing computer cannot perform multiplication or division, so we need to reformulate the Sharpe Ratio into something that works similarly. Our formulation works on quantum annealing computers, and therefore is a quantum algorithm.
How many stocks do you analyze?
We start with a composite list of US listed stocks (or tickers) that traded that day. That number has been running over 11,000 each day. We then apply our data validation filters and find ~ 1,300 stocks in the "DOWN" run and ~ 2,000 stocks in the "UP" run.
Observation on portfolio sizes:
Our "DOWN" portfolios are smaller than our "UP" portfolios. This is because diversification helps the investor to reduce their risk. Diversification reduces the CQNS scores of "Down" or short positions. Diversification also reduces the benefit of "UP" run CQNS scores, which is why we find stocks that work together to improve their CQNS scores (they complement each other).
Please describe the solver types that you use?
The best way is to point you to Wikipedia, after we give you a few 'plain English' words of explanation of each.
Quantum Annealer - Uses quantum energy level (think of atoms jumping around trying to find their 'groove'). When we start, atoms are still and are loaded with data. As the atoms heat up, they jump around and seek out the lowest energy level where they can settle in, which equates to the lowest CQNS score. As the system cools, the atoms become more still and only look in their immediate area. Finally, we stop and read the qubits, calculate the CQNS scores and whether the portfolio found was valid, and we keep the valid portfolios.
* we run the quantum annealer in certain situations...not all the time.
Monte Carlo - roll the dice, purely random chance
Simulated Annealing - based on temperature. When it is hot, we search more widely. As it gets colder we focus our search.
Genetic Algorithm - based on taking the best parts of each portfolio and creating new portfolios. Should always move us to better solutions. Add in mutations to capture 'nearby' portfolios.
Simulated Bifurcator - we simulate a pressure chamber. We form portfolios by having individual stocks migrate to be either in or out of the portfolios. We push the stocks in, and pull them out, and the pressure is the amount of impact applied from the matrix of data we created. We are looking for convergence as the pressure increases.
Particle Swarm Optimization - we have a set of particles that are each starting out in different parts of the portfolio search space (the 2^64 search space). Each one finds the best answer per turn, and the group of particles has momentum attracting all particles towards the center of gravity of the best answers. Over time, the particles settle into their best local solutions, and the center of gravity also moves to the best local solution found.
TABU (Multi-Start) - This one seems to operate mostly randomly with the best answers found collected and stored in memory for the next iteration. We generally do not find better answers than we find in a Monte Carlo run.
Greedy (steepest gradient descent) - imagine you are atop a mountain and want to find the deepest valley. You can step around you...so you feel around with your toe, and pick the way that goes down the most. Step that direction, then repeat with your toe. At some point, you stop going down in any direction, and then you stop.
Chicago Quantum Value Proposition:
- We create and invest a repeatable, scalable service that we continually run, analyze and improve. Over time we better serve our clients. We keep growing our data input sizes and solver effectiveness. We learn from our successes and our failures over time. We are growing our expertise in the US equities markets.
- We offer an alternative, which is to pay us to code, test and operate a custom analysis and model. This makes sense for clients that want to 'own' the analysis and have a very specific idea in mind of how they want to select stock portfolios. We welcome this business.
- This algorithm is free from emotion. This is a fact-based analysis, run repeatedly. The stocks selected change over time.
- Finally, this is a proprietary algorithm run on an in-house technology platform that uses professional market data services. You get the benefit of those investments and expenses.
Disclosures
We think investors should perform due diligence on stocks and ensure they understand the risks associated with equities investing. We do not guarantee investment results.
Our algorithm and methods are subject to change. They can be tuned to meet client needs and tastes. For example, we can adjust the risk parameter in the model, along with data validation limits and profitability constraints. We can add available financial metrics to our data validation process.
Thank you Chicago Quantum...what services do you sell to help investors?
CQNS UP or LONG analysis
$750.00
Are you looking to find efficient stocks and portfolios to hold? These are expected to outperform the US equity market by having lower prior price volatility and higher expected returns than other stocks or portfolios? The effects last for ~20 trading days.
After we receive your order we run our quantitative analysis on all US listed tickers that traded that day (currently ~ 11,000). We complete the 'run' and write up a management report with our results and observations.
What you receive:
1. All-star list: Individual stocks that are more efficient than an evenly weighted portfolio of all profitable stocks that pass data validation. These stocks have 'alpha' from a better risk-reward trade-off and should perform better than a fully diversified, equally weighted portfolio.
2. An ordered list of all stocks by CQNS score, along with other statistics about each stock (e.g. normalized variance, expected return, relative trading volume, relative price level, and past dividend yield). This is provided in a spreadsheet.
3. An ordered list of the top 25+ stock portfolios by CQNS score found. These are stock portfolios that are more efficient than a fully diversified, equally weighted portfolio.
4. Kurtosis analysis to identify stocks with low price variance and either a leptokurtic or platykurtic distribution (non-normal distribution in the fourth moment)
5. Skewness analysis to identify stocks with a large positive or negative skewness (non-normal distribution in the third moment)
6. Top 150 stocks by CQNS score
7. Bottom 50 stocks by CQNS score
8. Top dividend payers (over the past year)
9. BETA value analysis including a) negative BETA stocks, b) low BETA stocks and c) high BETA stocks
10. Price Spikes: Stocks with large, one-day price moves (up or down) over the past year
11. Volume Spikes: Stocks with exceptionally large volume in one day (100x average) over the past year
12. Stocks that split over the past year
13. Historical Data: Market returns for the S&P 500, NASDAQ Composite and Russell 2000 ETFs, along with the historical variance and future expected returns (annualized) of a portfolio of all profitable stocks that passed data validation
We email or upload to you the management report and the spreadsheet.
What you do:
You provide the following information as you place your order and pay via our website.
You may also call or email us the information separately.
For larger orders, you may request an invoice and we accept payment via check, ACH, or through an online payment processor (secure).
Thank you for your order and your business.
After we receive your order we run our quantitative analysis on all US listed tickers that traded that day (currently ~ 11,000). We complete the 'run' and write up a management report with our results and observations.
What you receive:
1. All-star list: Individual stocks that are more efficient than an evenly weighted portfolio of all profitable stocks that pass data validation. These stocks have 'alpha' from a better risk-reward trade-off and should perform better than a fully diversified, equally weighted portfolio.
2. An ordered list of all stocks by CQNS score, along with other statistics about each stock (e.g. normalized variance, expected return, relative trading volume, relative price level, and past dividend yield). This is provided in a spreadsheet.
3. An ordered list of the top 25+ stock portfolios by CQNS score found. These are stock portfolios that are more efficient than a fully diversified, equally weighted portfolio.
4. Kurtosis analysis to identify stocks with low price variance and either a leptokurtic or platykurtic distribution (non-normal distribution in the fourth moment)
5. Skewness analysis to identify stocks with a large positive or negative skewness (non-normal distribution in the third moment)
6. Top 150 stocks by CQNS score
7. Bottom 50 stocks by CQNS score
8. Top dividend payers (over the past year)
9. BETA value analysis including a) negative BETA stocks, b) low BETA stocks and c) high BETA stocks
10. Price Spikes: Stocks with large, one-day price moves (up or down) over the past year
11. Volume Spikes: Stocks with exceptionally large volume in one day (100x average) over the past year
12. Stocks that split over the past year
13. Historical Data: Market returns for the S&P 500, NASDAQ Composite and Russell 2000 ETFs, along with the historical variance and future expected returns (annualized) of a portfolio of all profitable stocks that passed data validation
We email or upload to you the management report and the spreadsheet.
What you do:
You provide the following information as you place your order and pay via our website.
- Your name, physical address, email address & phone number
- Any special requests, instructions, or actionable objectives
- How you would like to receive your report and spreadsheet (if not by email). We use Google Drive, Slack, Microsoft Teams/Office, and other collaboration technologies.
You may also call or email us the information separately.
- Email: jeffrey@quantum-usaci.com
- Cell: 312.515.7333
- Office: 847.780.4401
For larger orders, you may request an invoice and we accept payment via check, ACH, or through an online payment processor (secure).
Thank you for your order and your business.
One week of custom portfolio algorithm development & coding (quantum & classical)
$7,500.00
One of our team members (President or Associate) will code your algorithm ideas into quantum and/or classical algorithms for one week.
One week is defined as a continuous 5 day period (e.g., Monday - Friday).
We work in Python in Jupyter Notebooks. We code our proprietary solvers into the notebooks along with code to run the D-Wave Systems quantum annealing computers. You may want to software engineer the code afterwards to harden and speed up the models.
We will apply our skills, experience, and knowledge of the D-Wave Systems quantum annealing computers as well as with coding and running classical solvers. We apply our domain expertise in financial services and equities.
We will work with your team as requested (independently or collaboratively). We can provide training and mentorship as requested.
We will leverage your expertise in coding these if/when we work together with your development or trading teams. We are happy to work with you in your facility (safely due to Covid 19), work on video, or work remotely against your specifications.
You receive and own the code and documentation that we built upon payment for the time you have purchased. If you pay in advance, you may request access to the code and documentation at any time.
You will need to license any third-party libraries, modules, functions or SDKs we utilize. If you choose to use our professional market data services provider, Intrinio, you will need to acquire a license for that data (optionally through us).
We would like to run and maintain the code we develop for you and provide management reports (for a fee) at your option.
We will invoice our time and bill any expenses as incurred, or you may pay for our time in advance through this website.
One week is defined as a continuous 5 day period (e.g., Monday - Friday).
We work in Python in Jupyter Notebooks. We code our proprietary solvers into the notebooks along with code to run the D-Wave Systems quantum annealing computers. You may want to software engineer the code afterwards to harden and speed up the models.
We will apply our skills, experience, and knowledge of the D-Wave Systems quantum annealing computers as well as with coding and running classical solvers. We apply our domain expertise in financial services and equities.
We will work with your team as requested (independently or collaboratively). We can provide training and mentorship as requested.
We will leverage your expertise in coding these if/when we work together with your development or trading teams. We are happy to work with you in your facility (safely due to Covid 19), work on video, or work remotely against your specifications.
You receive and own the code and documentation that we built upon payment for the time you have purchased. If you pay in advance, you may request access to the code and documentation at any time.
You will need to license any third-party libraries, modules, functions or SDKs we utilize. If you choose to use our professional market data services provider, Intrinio, you will need to acquire a license for that data (optionally through us).
We would like to run and maintain the code we develop for you and provide management reports (for a fee) at your option.
We will invoice our time and bill any expenses as incurred, or you may pay for our time in advance through this website.
Stock Analysis Consultation (1 hour)
$125.00
You and I will have a discussion of the stocks that were picked in your run, a deeper dive into the Chicago Quantum Net Score algorithm, methodology, and results. We will also help you understand the valuations of the firms selected and special (if any) considerations with how the stocks traded over the past year.
You may arrange this to occur after your stock market analysis to better understand the results and discuss implications and actions.
We can discuss the other information we provide about each of the stocks analyzed, including dividends, relative price strength, relative volume strength and volatility.
Discussion to be scheduled and conducted as soon as practical, and can be within the hour if necessary.
A typical, repeat client spends 1-2 hours a week on the phone to build rapport and a common understanding of the findings of the model, key stocks which score well "UP" or "DOWN", changes in relative rankings, market rotation, and potential actions.
Over time, we may jointly analyze a few stocks in detail and discuss their current and future financial position, social media positioning, and prospects.
After payment, please text Jeffrey Cohen at +1.312.515.7333 or email him at jeffrey@quantum-usaci.com to schedule your consultation.
CQNS DOWN or SHORT analysis
$750.00
Are you looking to find stocks or portfolios to avoid holding or to short / bet against?
Do you want to identify inefficient stocks that decline faster than the market on a down day?
Want to find stocks expected to underperform the US equity market by having negative net income and a worse historic price volatility and expected return trade-off than other stocks or portfolios?
These effects last ~20 trading days.
After we receive your order, we run our quantitative analysis on all ~11,000+ US listed tickers that trade that day. We complete the 'run' and write up a management report with the results and our observations.
We email or upload to you the management report and the spreadsheet.
What you receive:
1. Dog-star list: The most inefficient 50 individual stocks found. These are the stocks with the poorest risk/return trade-off.
2. An ordered list of all stocks by CQNS score, along with other statistics about each stock (e.g. normalized variance, expected return, relative trading volume, relative price level, and past dividend yield). This is provided as a spreadsheet.
3. An ordered list of the most inefficient 25+ stock portfolios. Many will be individual stocks as diversification improves risk/return trade-offs.
4. Kurtosis analysis to identify stocks with low price variance and either a leptokurtic or platykurtic distribution (non-normal distribution in the fourth moment)
5. Skewness analysis to identify stocks with a large positive or negative skewness (non-normal distribution in the third moment)
6. Worst 150 stocks by CQNS score
7. Best 50 stocks by CQNS score (the best of the negative net income stocks)
8. Top dividend payers (over the past year)
9. BETA value analysis including a) negative BETA stocks, b) low BETA stocks and c) high BETA stocks
10. Price Spikes: Stocks with large, one-day price moves (up or down) over the past year
11. Volume Spikes: Stocks with exceptionally large volume in one day (100x average) over the past year
12. Stocks that split over the past year
13. Historical Data: Market returns for the S&P 500, NASDAQ Composite and Russell 2000 ETFs, along with the historical variance and future expected returns (annualized) of a portfolio of all negative net income stocks that pass data validation.
What you do:
You provide us with the following information as you place your order:
You may also call or email us with your information.
For larger orders, you may request an invoice and we accept payment via check, ACH, or through an online payment processor (secure).
Thank you for your order and your business.
Do you want to identify inefficient stocks that decline faster than the market on a down day?
Want to find stocks expected to underperform the US equity market by having negative net income and a worse historic price volatility and expected return trade-off than other stocks or portfolios?
These effects last ~20 trading days.
After we receive your order, we run our quantitative analysis on all ~11,000+ US listed tickers that trade that day. We complete the 'run' and write up a management report with the results and our observations.
We email or upload to you the management report and the spreadsheet.
What you receive:
1. Dog-star list: The most inefficient 50 individual stocks found. These are the stocks with the poorest risk/return trade-off.
2. An ordered list of all stocks by CQNS score, along with other statistics about each stock (e.g. normalized variance, expected return, relative trading volume, relative price level, and past dividend yield). This is provided as a spreadsheet.
3. An ordered list of the most inefficient 25+ stock portfolios. Many will be individual stocks as diversification improves risk/return trade-offs.
4. Kurtosis analysis to identify stocks with low price variance and either a leptokurtic or platykurtic distribution (non-normal distribution in the fourth moment)
5. Skewness analysis to identify stocks with a large positive or negative skewness (non-normal distribution in the third moment)
6. Worst 150 stocks by CQNS score
7. Best 50 stocks by CQNS score (the best of the negative net income stocks)
8. Top dividend payers (over the past year)
9. BETA value analysis including a) negative BETA stocks, b) low BETA stocks and c) high BETA stocks
10. Price Spikes: Stocks with large, one-day price moves (up or down) over the past year
11. Volume Spikes: Stocks with exceptionally large volume in one day (100x average) over the past year
12. Stocks that split over the past year
13. Historical Data: Market returns for the S&P 500, NASDAQ Composite and Russell 2000 ETFs, along with the historical variance and future expected returns (annualized) of a portfolio of all negative net income stocks that pass data validation.
What you do:
You provide us with the following information as you place your order:
- Your name, physical address, email address & phone number
- Any special requests, instructions, or actionable objectives
- How you would like to receive your report and spreadsheet (if not by email). We use Google Drive, Slack, Microsoft Teams/Office, and other collaboration technologies.
You may also call or email us with your information.
- Email: jeffrey@quantum-usaci.com
- Cell: 312.515.7333
- Office: 847.780.4401
For larger orders, you may request an invoice and we accept payment via check, ACH, or through an online payment processor (secure).
Thank you for your order and your business.
Investment Planning Workshop
$2,500.00
This service delivers a workshop and investment plan for our client. The investment plan consists of a summary of assets, expenses, timelines and objectives for our client. It also includes a discussion of investment options, including the use of our proprietary Chicago Quantum Net Score (CQNS) algorithm and platform.
This service consists of multiple preparation calls and meetings, a workshop (in-person) where we build a firm understanding of our client's financial situation and objectives, discuss topics and answer questions they may have.
We also run a pair of 'Chicago Quantum Net Score' runs (both UP and DOWN) for the client in advance of the workshop and walk through the insights and findings. This is a $1,500 value.
By the end of the workshop, and through the development of the investment plan, we have built a better understanding of the client's situation and found stock portfolios that may be attractive (either long or short). The client benefits from understanding then current information and analysis our firm has performed on the financial markets and increases their financial literacy.
We may also suggest the client watch a few of our YouTube videos and we can discuss the data sources and analyses we perform daily on overall financial markets.
The workshop portion of the service is intended to be delivered onsite with the client. It can also be spread over two days to accommodate schedules.
This includes up to 20 hours of effort from our Investment Advisor Representative.