How Do Options Make Predictions?
- Thread starter kjb1891
- Start date
An interesting vision. I like it. Thinking like that is an example of a creative, intelligent approach to trading. Of course, the challenge is in quantifying the vision and making it robust enough to trade by it. But overall, it is in the general direction of my thinking as well. Good luck!
This sounds very logical but - and this is just my experience - this kind of linear logic will get you nowhere in the markets. It just doesn't work that way.
Maestro's "poetic" approach - where money and human herds move in ways similar to a school of startled minnows - is a more fruitful and accurate way of looking at it IMHO. I don't know what his strategy is but in general the way he talks about market behavior rings true.
Here is the book I got many of my inspirations from.
http://pespmc1.vub.ac.be/books/IntroCyb.pdf
Now the soldier realised what a capital tinder-box this
was. If he struck it once, the dog came who sat upon the
chest of copper money, if he struck it twice, the dog came
who had the silver; and if he struck it three times, then
appeared the dog who had the gold.
(âThe Tinder-Boxâ)
http://pespmc1.vub.ac.be/books/IntroCyb.pdf
Now the soldier realised what a capital tinder-box this
was. If he struck it once, the dog came who sat upon the
chest of copper money, if he struck it twice, the dog came
who had the silver; and if he struck it three times, then
appeared the dog who had the gold.
(âThe Tinder-Boxâ)
Never a dull thread with Maestro on board.
Something to ponder.
http://www.bulldogtrust.com/trading.htm
"A POSSIBLE IMPLEMENTATION:
Analysis was done of a sample strategy based on using put option "insurance" purchases to predict institution-sized IBM stock purchases. It appears the options, being less liquid than the stock, are typically bought first by an institution planning to acquire a stock, to minimize risk. During a recent day, eight significant volume and price spikes were noticed in IBM's nearby out-of-the-money puts, the options favored for insurance.
Tracking the IBM stock at one minute intervals after each of these option spikes showed that if stock were purchased within 30 seconds and sold ten minutes later, these trades would be profitable 80% of the time, with profit averaging 1/4 %. While this was but a third of Medallion's tiny take, it is still twice expenses, mostly commission and spread. Multiplying these eight profits by a 200 day trading year, one gets 1600 times the net margin of one-eighth percent , or 200% gain on the portfolio, which would be 50% on total assets. "
Something to ponder.
http://www.bulldogtrust.com/trading.htm
"A POSSIBLE IMPLEMENTATION:
Analysis was done of a sample strategy based on using put option "insurance" purchases to predict institution-sized IBM stock purchases. It appears the options, being less liquid than the stock, are typically bought first by an institution planning to acquire a stock, to minimize risk. During a recent day, eight significant volume and price spikes were noticed in IBM's nearby out-of-the-money puts, the options favored for insurance.
Tracking the IBM stock at one minute intervals after each of these option spikes showed that if stock were purchased within 30 seconds and sold ten minutes later, these trades would be profitable 80% of the time, with profit averaging 1/4 %. While this was but a third of Medallion's tiny take, it is still twice expenses, mostly commission and spread. Multiplying these eight profits by a 200 day trading year, one gets 1600 times the net margin of one-eighth percent , or 200% gain on the portfolio, which would be 50% on total assets. "