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Oh, I'm fair...let's see, 1 tera dollar sound good? But it *has* to work for at least three years.

You'd have to hedge FX going forward, which would kill any IA? As a more general question, though, why does the underlying sometimes diverge so much for so long? Can't imagine it's all FX risk, reg risk? eg Wipro, quotes from Yahoo: WIT(ADR) 19.6USD vs 507685.BO (? not sure)...

Yes, and even the first moment plays a role in principal, because the risk-free rate is stochastic, too.

I was about to ask, can anyone give me leading indicator for prices? I'm willing to pay, if it works. :)

d(x + y) = dx + dy, but d(xy) = y dx + x dy, so depending on how you wish to use this number, you might not need 5 digits. [edit] BTW, facetious again, but that's not say I don't enjoy these threads.

You're right, thanks. So was I. [edit] Well, meaning Eco pokes fun at people looking for meaningless (numerical) coincidences in nature. Here, of course, we have progressed from "nature" to "human behavior."

Eco's "Faucault's Pendulum" has a good discussion of these issues.

Agreed. Then you are contributing toward making the markets more efficient. Hypothetically, if they already are, the cost of the hedge would cancel your gains on the stock side, assuming all elswe equal. [edit] OK, but then you're mitigating your profit?

Currency risk, political risk...? You do get excess reward, in expectation, for holding any risk that others want to unload. MM and retail traders also are rewarded for making the markets efficient, I suppose.

Well, almost right. :D

As the previous poster points out, the theory is quite simple, but the devil is in the details, especially once you put in constraints and want to be fast about it.

Looks like you're setting the strike based on the volatility of the (closing) *level* of the SPX? That would explain the high probabilities you're getting. Sorry, I was confused by the initial message and thought you were surprised by the probs you were getting when you were 2 std devs below...

Quick question: how do you set s, your strike? Did you scale the return volatility by sqrt(t)?