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When the market will switch from a Gaussian to a non-Gaussian distribution cannot be predicted a-priori. So Steve, I'm wondering what the essence of your technique is. Is it just writing naked options or credit spreads, and using your formula to tell you which strikes to put the position on at?

If you sell OTM options, then risk is unlimited. By spreading off that risk and buying further OTM options for example, then you are also making a long shot bet that the event will happen. The problem is that OTM strikes have such little payoff. payoff = probability*(reward/risk) It's...

"Never bet on a long shot." -Frank "Lefty" Rosenthal

He is just assuming a Gaussing distribution of prices, and uses the mean historic volatility of a given lookback period as input. Trading like this will loose you money! Prices are not Gaussian for long enough periods of time for this to work out consistently. Although folks who do credits...

How to predicte the future from past data! Obviously, I'm being sarcastic, but that is what TA is all about. I'd really like to hear some options techniques for decreasing the spread. Any chance spreads will ever go to a penny on active issues?

I doubt that you will get 2:1 returns except for outright long positions (no spreads.) The problem then is that strikes with a 70% (delta 0.3) chance of finishing OTM have a low payoff compared to ATM strikes.

A lot of people calculate probabilities when deciding which strike to consider, but has anyone here traded options based on payoff instead? Payoff = probability*(reward/risk) In essence, trading at strikes with the highest payoff instead of highest probability. I'm wondering if over time...

Short Calendar spreads seem to have alot of the characteristics that suite my trading style. However, when I look at equity spreads with say 3-6 months left (for both contracts), the spreads don't seem much more than .05-0.20, even when IV is relatively high. What is reasonable to expect for...