Leverage as a Financial Tool

Today on Trend Following Radio I talk with Lawrence McMillan of McMillan Analysis Corporation. The topic of discussion is options, their value in terms of overall strategy, and how their trading has evolved over the preceding decades.

The conversation opens with Lawrence talking about his days at historic Bell Labs – a research company founded in the 19th century by Alexander Graham Bell – and the initial difficulty in working with options due to their complicated nature and the level of technology required.

Later, I ask Lawrence to talk about the CBOE Volatility Index (VIX) and how, since the subprime crisis of 2008, many are looking at the VIX as long-term insurance for the future. One of the problems with that strategy, as Lawrence points out, is that many people fail to take into account that VIX only measures market expectations for the next 30 days.

Also discussed today are leverage as a financial tool and the concept of the black swan – unforeseen events that have a major impact, but only rationalized after the fact. Lawrence brings decades of experience and wisdom, gain perspective.

In this episode of Trend Following Radio:

  • American vs. European-style options
  • The logic behind VIX
  • Leverage as a tool
  • Understanding puts and calls
  • Long and short selling
  • Examining the subprime mortgage crisis of 2008

To begin listening, click play on the video at the top of this page, or below…

Regards,

Michael Covel
for The Daily Reckoning

P.S. I originally posted this episode of Trend Following Radio, right here.

Editor’s Note: Be sure to sign up for The Daily Reckoning — a free and entertaining look at the world of finance and politics. The articles you find here on our website are only a snippet of what you receive in The Daily Reckoning email edition. Click here now to sign up for FREE to see what you’re missing.