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Protective Puts
Buying a put against shares held, which caps the loss below the strike. The protection is real and it is paid for, repeatedly.
Vertical Spreads
Buying one option and selling another of the same type and expiry at a different strike. Both the cost and the maximum outcome are capped.
Calendar Spreads
Selling a near-dated option and buying a longer-dated one at the same strike. The position is a bet on time and on volatility rather than on direction.
Assignment and Exercise
Exercise is the holder's action; assignment is what happens to a seller. Both convert an option into a position in the underlying, sometimes unexpectedly.
Long-Dated Options
Options with expiries measured in years. Time decay is slower, the premium is larger, and the exposure to volatility and rates is correspondingly greater.
Futures Contracts
A standardized agreement to transact at a set price on a future date. Unlike an option, both parties are obliged, and the exposure is the full contract value.
Futures Margin and Daily Settlement
Futures margin is a performance bond, not a loan. Positions settle in cash every day, which means a losing position consumes cash before it is closed.
Roll Yield in Practice
A fund holding futures must roll them forward. The shape of the futures curve determines whether that roll costs money or earns it, and over years the effect dominates.
VIX and Volatility Products
An index measuring expected volatility over the next thirty days. It cannot be held directly, and the products referencing it behave differently from the index.
Leveraged and Inverse Funds
Funds targeting a multiple of an index's daily return. The daily reset means their long-run behavior differs from the multiple in ways that are mathematical rather than incidental.
What a Blockchain Is
A ledger maintained by many parties at once, where entries are appended in batches and the ordering is agreed by a mechanism rather than by an institution.
Custody and Keys
Whoever controls the private key controls the asset. There is no institution positioned to reverse a transfer, restore access or adjudicate a dispute.
Platforms and Counterparty Risk
A balance shown on a platform is a claim on that platform. The distinction between a claim and a holding is the subject of most of the sector's failures.
Spot Crypto ETFs
An exchange-traded wrapper holding the asset itself, traded through an ordinary brokerage account. The wrapper changes the custody and the protections, not the underlying volatility.
Stablecoins
Tokens designed to hold a constant value against a currency. What they hold behind them, and who has a claim on it, differs enormously between them.
The Regulatory Position
Which regulator covers a digital asset depends on whether it is a security, and that question has been contested in litigation for years.
Asset Allocation
The split between asset classes is the decision that determines most of a portfolio's variability. It is also the one made least often and reviewed least carefully.
Rebalancing
Left alone, a portfolio drifts toward whatever has performed best. Rebalancing restores the intended weights, which means selling what has risen.
Dollar-Cost Averaging
Investing a fixed amount at regular intervals. It is two different things depending on whether it describes ongoing contributions or the deployment of a lump sum.
Horizon and Risk Tolerance
Two different constraints that are frequently treated as one. Horizon is a fact about when the money is needed; tolerance is a fact about what will actually be held through.
Choosing a Benchmark
A return means nothing on its own. What it is compared against determines whether it was good, and the comparison is frequently chosen to flatter.
Tracking Error
How far a portfolio's returns deviate from its benchmark, measured as a standard deviation. It quantifies how different a portfolio is, not how good.
Sharpe, Sortino and Risk-Adjusted Return
Return per unit of risk, where risk means the variability of returns. The measures are useful, widely quoted, and rest on assumptions that returns do not satisfy.
The Efficient Frontier
The set of portfolios offering the highest expected return for each level of risk. A foundational idea, and one whose inputs are estimates with enough error to move the answer entirely.
Performance Attribution
Decomposing a return into the decisions that produced it. Without it, a good year and a lucky year look identical.
Home Bias
Investors everywhere hold far more of their own country's market than its share of the world would suggest. The pattern is universal, well documented, and only partly rational.
Concentration and Diversification
Diversification lowers the variability of an outcome and lowers the extremes in both directions. Which is preferable is a question about objectives rather than about markets.
Taking Money Out
Drawing down a portfolio is a different problem from building one, because the order of returns starts to matter. The same average return can produce very different outcomes.
The Value Factor
The tendency for cheap securities to outperform expensive ones over long periods. One of the most studied effects in finance, and one that spent a decade not working.
The Momentum Factor
Securities that have performed well over the past several months have tended to continue over the following months. Robust, widely replicated, and prone to sudden severe reversals.
Quality and Profitability
Profitable, stable, conservatively financed companies have outperformed their opposites. The effect is well supported and the definition of quality is not standardized.
Size and Low Volatility
Two of the original documented effects. One has weakened substantially since publication; the other contradicts the basic risk-return relationship and has persisted.
Factor Cyclicality
Every documented factor has spent long periods underperforming. The horizon required to evaluate one is longer than most people's patience, which is part of why the premiums may persist.
Backtesting
Testing a rule against historical data. The exercise is essential, straightforward to perform, and extremely easy to perform in a way that produces a meaningless result.
Overfitting
A model complex enough to describe the past perfectly has described the noise as well as the signal, and the noise does not repeat.
Survivorship and Look-Ahead Bias
Two errors that inflate results silently. One tests only the securities that made it; the other uses information that was not available at the time.
Modeling Transaction Costs
The gap between a backtest and a live result is usually costs. They are certain, they scale with turnover and size, and they are the most commonly omitted input.
Walk-Forward Testing
Fitting on one window and testing on the next, repeatedly. It is the closest a historical test can come to simulating how a strategy would actually have been run.
Capital Gains, Short and Long
A realized gain is taxed at a rate that depends on how long the position was held. The boundary is one year, and it is frequently the largest single cost in a short-horizon method.
Qualified and Ordinary Dividends
Dividends are taxed at two different rate structures, and which one applies depends on the payer and on how long the shares were held around the ex-date.
Cost Basis Methods
When part of a position is sold, which shares were sold is a choice. The default is usually first-in first-out, and it is rarely a deliberate one.
Wash Sales
A loss is disallowed if a substantially identical security is bought within a window around the sale. The loss is not lost; it moves into the basis of the replacement.
Tax-Loss Harvesting
Realizing a loss to offset a gain is a deferral rather than a saving, and the value of the deferral depends on the rate difference and on what is bought instead.
Tax-Advantaged Accounts
The two structures defer tax at different ends. Which is preferable depends on rates now against rates later, which nobody knows.
Required Minimum Distributions
Tax deferred is not tax forgiven. Traditional retirement accounts must begin distributing at a specified age, and the amount is set by a table rather than by choice.
K-1s and Partnership Structures
Some listed securities are partnerships rather than corporations. They report on a K-1 instead of a 1099, arrive late, and carry consequences that surprise holders.
Foreign Withholding on Dividends
A dividend from a foreign company is often taxed at source before it arrives. Whether any of it can be recovered depends on treaties and on the account it is held in.
State Considerations
Federal rules are only part of the picture. States tax investment income differently, and some securities are treated differently depending on where the holder lives.