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That is the risk in outright speculation with options. The leverage can work for you or against you. Try trading only options that have enough liquidity that they normally have penny spreads. If your strategy is to identify a setup in the underlying, and then try to leverage potential...

I'm just curious that if, in your opinion, more sophisticated strategies like statistical arbitrage, provides superior returns to a buy and hold strategy or even a simple MA strategy? I'm just wondering if all the programming time, effort and mathematical gymnastics is worth it?

You can certainly apply Gaussian statistics to market data and come up with a probability, but the assumptions you have to make are dubious at best. Gaussian stats just aren't generally a good model for markets. However, I don't think that any other form of statistics (fractal stats for...

If there is a pattern or an indicator that worked 300 years ago, it will work today. This is because markets move as the result of human behavior and motives, which have never changed. If it didn't work then, it won't work today.

From Bernt Odegaard's site. Finds IV using Method of Bisections #include <cmath> #include "fin_recipes.h" double option price implied volatility call black scholes bisections(const double& S, const double& K, const double& r, const double& time, const double& option price){ if...

I think the lesson here is that to get really, really rich, you have to create something of value. Namely, a business. Sure, you can create some wealth for yourself over time by investing your 9-5 income into a 401K or mutual funds etc., but that will never make you extremely wealthy. Of...

This is what you are looking for. http://finance.bi.no/~bernt/gcc_prog/recipes/recipes.pdf

So is the smile structure for the VIX so tilted that ITM Puts (OTM Calls) have lower IV than the ATM contract?

Of course that is not an irrational fear. More often than not, making a profit hinges on being right. Being right about direction, being right about the time it takes to reach price X, etc.

Like any indicator, ADX, +DI/-DI, is just a number. You're interpretation of what that number means is subjective. The market doesn't have to react just because your number was reached. Save yourself time and effort and forget trading based on any given indicator alone. Look into a trading...

I think we all know that supply and demand drive price. The problem is how does one quantify supply and demand? That's why technical analysis exists. Fundamental analysis is too nebulus a concept for me personally.

The markets may not be perfectly random, but as you just described, they are random enough that most trading methodologies aren't going to work.

One reason to get historical prices is to be able to calculate the greeks and impl. volatility. Creating historical implied volatilty surfaces can give you insight into the current implied surface, and thus option price. Looking for mispricings, arbitrage, and market making prices etc. Of...

Don't forget about the implied volatility smile (skew) structure. For equities, farther OTM options generally have a higher IV. This difference become more pronounced the closer to expiration you get. In other words, the smile becomes a maniacal grin.

Random markets has everything to do with the idiosyncratic behavior of humans, and also is the cause of why they are not perfectly Gaussian.

All real word financial data have some degree of skew and kurtosis to thier distribution. They do not follow a perfect Gaussian distribution. What causes the skew and kurtosis is due to human psychology and behavior (or more specifically crowd behavior.) Finding the right entry spot to do...

Yep, haven't seen a Taleb post lately, but what you're saying is all about Black Swans.

I hope you're not suggesting that retail traders start dynamically delta hedging their positions. They will lose so much money to spreads, slippage, and commission. Also you have to consider the possible expense of buying options software to track the delta of your position, and the time...

What no one has conceded yet is that the most important factor in an options price is the absolute level of the underlying, and not volatility. In other words, if buy low IV or sell high IV, if you get the direction of the underlying wrong, it will be extremely hard to make money with options...

I like what IVolatility.com does with their IV Index, that is scale the implied from 1-100. 100 being the highest implied over the past 52 weeks. However, the thing to remember about option pricing is that the biggest factor is the absolute price of the underlying instrument. Get the...