How Do Options Make Predictions?
- Thread starter kjb1891
- Start date
If you read in Barron's that a poll of the nation's investment advisors showed 95% are bullish on IBM, would that inspire you to buy IBM? Of course not. Any seasoned trader understands that such unanimity of opinion is a contrarian indicator.
I look at IV and skews in the same way. Sure they indicate market sentiment - more reliably than any poll. But like any sentiment indicator, I take them as contrarian indicators, not direct predictors.
Let us say that ES H9 trades at 827. For March expiration options nearest OTM put premium is Bid = 45.75 and Ask = 46.50. (Bid + Ask)/2 = 46.125. Let us deduct this number from the current price (827 â 46.125 = 780.87). The nearest strike is, of course 780. Put premium at 780 is Bid = 28.50 and Ask = 29.00; (Bid + Ask)/2 = 28.75. Let us divide 46.125 by 28.75. Surprisingly this ratio is 1.61 which is very damn close to a famous Fibonacci number (golden ratio) of 1.61803399. What does it mean? Why did it happen? What would happen to this ratio under different volatility conditions? How one can use these ratios to his advantage? What distance in the chains does the number 46.125 represent? Do these ratios maintain throughout all the options in the chains, all the strikes and expirations? Do they behave as a âswarmâ? What happens if some of them donât? How frequently these numbers change and why? I can continue for a long time with those questions. Donât expect me to give you answers. I think you have enough now to do your own research.
I continue to be astounded that people will waste their time on such nonsense while assuming causation. Absolute quackery on the level of astrology.
Yes, you are right. NONSENSE, QUACKERY, ASTROLOGY etc. Let us have a good laugh and forget about it. I guess, You can lead a horse to water, but you can't make it drink. Consider the whole thread as entertainment, no harm done. Yet again my attempt to ignite imagination brought nothing but disappointment. I really should stop doing this. You cannot discuss the beauty of music with a deaf person. The Earth of course is still flat and who ever tries to state otherwise is a source of NONSENSE, QUACKERY, ASTROLOGY etc. I participate in ET very rarely for the very reason you stated in your post. Time-to-time I feel that someone out there could be inspired by the research that I have been doing for a long time now, but as usual, NONSENSE, QUACKERY, ASTROLOGY etc. is the label you get on the end. Well, I am good now for another half a year or so of not posting.
Maestro, don't mind the noise...this guy has a history and the link below details his problem. Thanks for the insight you are providing the audience with. It is obvious you have spent a huge amount of time on your R&D.
http://en.wikipedia.org/wiki/Envy
Envy (also called invidiousness) may be defined as an emotion that "occurs when a person lacks anotherâs [perceived] superior quality, achievement, or possession and either desires it or wishes that the other lacked it."[1] It can also derive from a sense of low self-esteem that results from an upward social comparison threatening a person's self image: another person has something that the envier considers to be important to have. If the other person is perceived to be similar to the envier, the aroused envy will be particularly intense, because it signals to the envier that it just as well could have been him or her who had the desired object.[2][3]
Bertrand Russell said envy was one of the most potent causes of unhappiness.[4] It is a universal and most unfortunate aspect of human nature because not only is the envious person rendered unhappy by his envy, but also wishes to inflict misfortune on others.