This is another follow-up on the QIHU short trade that was generated through the optimization model I recently built. In yesterday's post on the QIHU follow up, I noted the leverage gained by using options as a return driver. I've talked about option leverage before but now I want to view it in the context of a multi-asset position - like the short QIHU trade which has 4 components... 1 stock and 3 options. I started my career in traditional fixed income asset management doing portfolio analytics and risk reporting. One of the key risk concepts of fixed income is convexity. Convexity is the second derivative of the bond pricing model that accounts for the non-linearity of returns for changes in - mostly - interest rates (duration and convexity on non-investment grade debt tends to be more empirical). Convexity is a major benefit to the holder of an asset... being long convexity means that you're making more as the value of your investment increases than you lose ...