Recent content by sambian

No, it isn't. MasterAtWork made a good point on page 5 - "For every initial level, a forward or a future got a delta around 100% (interest rate set to 0). Does it mean that the future has 100% probability to close above its initial level. Sure it doesn't."

A real example: stock price is 5.74, delta for strike price 6 is 0.5008.

No, and this was my point. "Delta" in BSM formula is calculated from several inputs, one of them is volatility. If volatility changes, delta changes too. I suppose that you look at "delta" as "probability of ending in the money" and from this you make the logical conclusion that it should be...

I'm curious how can you do that.

This seems intuitively true, but is not correct, if you are talking about Black-Scholes-Merton "delta". Try any BSM calculator and set volatility first to 20% and then to 200% (for example) and see how much the "deltas" for the call and put change. The higher the volatility, the higher the...

So in theory your trades should be profitable. I would never do them, because for me the theory behind the option pricing formulas is completely wrong. But I have to be very theoretical to explain why. Without being theoretical, I can point you one empirical fact - the existence of "volatility...

You are right. But theoretically IV on all strike prices for the same expiration date should be the same, and this is not the case, therefore we have the "volatility skew". For me this is as feasible as "buying" and "selling" volatility from the skew. Your question is interesting so it...

http://sambian.wordpress.com/2010/02/07/29/ Here is a description for the optimal strategy for Gaussian market. The problem is that such market can not exist :) We discussed the subject here - http://www.elitetrader.com/vb/showthread.php?s=&threadid=195603

This is not correct. ln(1.2) is not equal to -ln(0.8). If the asset is today at $100 and the natural logarithm of the price change is either 0.2 or -0.2, then the future price will be either $122.14 or $81.87. exp(0.2)=1,221402748 exp(-0.2)=0,818730753

Because I'm worried about your financial health. You should thank me for that. The expected value is 0, as you already showed us. The fact that you owe me such large sum of money is due to pure luck. However, maybe you already have a new (fifth?) explanation for the "fallacy" of my system...

I'm willing to put up $0.01 to play the game. You already owe me the net worth of Bill Gates + Warren Buffet, so I suppose you are the one who is leveraged :)

I backtested it with FAZ and FAS and with SPXU and UPRO since inception. In both cases there were huge trends and buy-and-hold performed better than my system. I used adjusted closing prices for FAZ and FAS since there were stock splits, but I doubt whether one would achieve such returns (over...

Cool. This means that I have reinvented the wheel :D So actually all the criticisms that I got here should have been directed at Claude Shannon :)

I would like to take a look at this book, but can't (for now). Can you tell us more about what is written there, did it mention that the Kelly bet is to buy with half of the capital? Note that my system does not require that the price is mean reverting. The price follows a random walk and can...

I am worthless piece of shit :) This can be your consolation :) How much are you worth, in total? This should be the more important question, since you owe me money :)