Understanding your risk is a key part of trading so this segment features study results comparing the risk of outlier moves in ETFs versus individual stocks. This should help your trading.
The Market Measures, “Risk & Reward | Stocks vs ETFs”, on Nov 23, 2015 showed that ETFs have a lower implied volatility than individual stocks. The question then arises if it matters whether we trade stocks or ETFs assuming everything is priced in?
We can calculate the expected move based on the implied volatility (IV) and time to expiration (DTE) (the formula was displayed) to get an idea of what the market is anticipating, A study was conducted using the S&P 100 from 2005 to present. We calculated the the 45 day expected price move for each stock in the S&P 100 and then noted how often the stock price stayed within or exeded the expected price move. An example was given to increase understanding.
A table comparing individual stocks and ETFs was displayed. The table showed the percentage for both in which they stayed within their expected move and went outside their expected move. A second table comparing individual stocks and ETFs was displayed. The table included the percentage for the 1 standard deviation (SD) move, 1-2 SD move, 2-3 SD move, 3 plus SD move and largest SD move for both stocks and ETFs.
A graph comparing the standard deviation moves of both ETFs and individual stocks was displayed. The graph showed that individual stocks tended to have larger moves or fatter tails as shown on the graph.
Watch this segment of “Market Measures” with Tom Sosnoff and Tony Battista for the takeaways and other important information comparing outlier moves in stocks versus ETFs and which vehicles are more appropriate for smaller traders. This segment supports the tastylive philosophy.
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.