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Thanks for your feedback digitalnomad. I'm happy you liked my article. You wrote: "The “training” thing I disagree with 100%. You can’t train the models to conform to abnormal distributions. It can only be a game of handicapping with forward analysis and implementation." I don't believe we are...

Clearly, you have not read the article sle. You definitely should. It exposes the dangerous vanity of quants who don't understand the severe limitations of their mathematical models. Firstly, I'm talking about TensorFlow Probability (TFP) and not TensorFlow. Big difference. They couldn't be...

“I can calculate the movement of the stars, but not the madness of men.” - Isaac Newton In this introductory article, we explore three types of errors inherent in all financial models. We examine these errors using a simple probabilistic model that can be used for predicting the federal funds...

Compared to SPX options, I have found ES options to be: 1. Less liquid. The Asian session is the worst so not much of an advantage there. 2. Have higher commissions and exchange fees 3. More slippage since ES options trade in $0.25 increments as opposed to $0.05 To manage overnight risk, I...

It's true that the bid/ask spread of SPX weeklies is always narrower than what you see on your screen. Same is true for the AM settled monthlies. However, if there is a major risk event, like a Fed rate decision, market makers will make you pay many times that nickel off the midpoint if you...

Nope. The monthlys expired yesterday and the settlement value, SET, was determined at the open today. He's talking about the weekly SPX options that will expire at the close today.

SPY going ex-dividend is yesterday's event risk. Traders have already flattened those positions by yesterday's close. I had an iron butterfly position on SPY expiring today. I closed the put vertical spread half yesterday at the close because they were deep in the money and I didn't want to be...

If disseminated quotes get tighter because of electronic trading, the increased transparency should attract more order flow, which in turn should reduce the risk for all market participants. This should lead to narrower spreads of the actual markets. Those are the second order effects of...

Where are all the cost savings going after you kick the traders off the SPX pit and make trading electronic? The evidence over the last decade seems to point in the opposite direction to your forecast. Getting the market makers out of the pits and trading electronically has significantly...

Why do you doubt the spreads won't narrow even if everything becomes electronic? Is it because the spreads are already as narrow as they can get for large volume orders? Or is it because SPX is proprietary? Both?

Trading is a very hard craft and I'm painfully aware of my imperfections. But the topic of this discussion is not my performance or abilities but the tools we are using. Unlike the black and white truths of fables, the truths of trading are rather gray. Sometimes, as in this situation, there is...

Backtesting? I trade options spreads for a living and have been doing so for almost a decade. That's when you realize how a little mathematical quirk can lead to significant financial losses in real life trading. Until very recently, you did not have SPX options expiring on Wednesdays or...

I'm not sure I understand your point either. The quirk is the flaw. There is an actual hole in the volatility surface and it was not possible to trade it, at least not easily. So what's the point of making a proper volatility surface model? Theory that doesn't support my trading is useless.

I think the only good reason that AM settled options are still around is that it enables pit traders on the CBOE to make a killing from artificially wide spreads and unsuspecting or panicky traders :) Any financial instrument that is not transparent and has an inside narrower spread available...

The mathematical flaw has to do with the volatility surface implied by the previous SPX/SPXW series and is clearly exposed by a simple, consistent weekly long calendar strategy. If you have a strategy that requires you to put on weekly long calendars where the difference between the short...

It was not only byzantine but deeply flawed mathematically and commercially. I had emailed the Director of CBOE on October 29, 2015 expressing my frustration about all three options series and suggested that they merge SPXPM with SPXW into one series. At the end of the long discussion, the...