No. For probability calculations you only need input the future volatility.
Anyone know how to work that one out
Luck in Options Trading!
- Thread starter Multioption
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Anyone know how to work that one out
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stupid post thats why.
The implied volatility of options are usually not priced correctly, especially before major news annoucement. And whatever historically volatility that you calculate has little value in predicting the future volatility. Hence, any probability model that you come up with related to turning 10K to 100K in 3 months is destined to be far off from reality.
If he throws the 10k into GOOG Oct 330 calls last night, mission more than accomplished. Are you going to come up with some probability model about how often GOOG would give blowout earnings and market reacts favorably?
And you think calculating the odds in winning the powerball makes any sense? Even you buy it every 5 days, you won't have a large enough sample size in your lifetime to apply the model. If you are lucky, you buy it and you win. http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2005/10/21/MNGH7FBVPU1.DTL
I think the most important ingredients to trade options successfully are (in their order of importance): Luck, guts and skill.
Without luck, you can have a 99% "sure-win" trade and you still lose. And without guts to execute your trade, you won't even make any money. And then you need some skills to find high probability trades.
If he throws the 10k into GOOG Oct 330 calls last night, mission more than accomplished. Are you going to come up with some probability model about how often GOOG would give blowout earnings and market reacts favorably?
And you think calculating the odds in winning the powerball makes any sense? Even you buy it every 5 days, you won't have a large enough sample size in your lifetime to apply the model. If you are lucky, you buy it and you win. http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2005/10/21/MNGH7FBVPU1.DTL
I think the most important ingredients to trade options successfully are (in their order of importance): Luck, guts and skill.
Without luck, you can have a 99% "sure-win" trade and you still lose. And without guts to execute your trade, you won't even make any money. And then you need some skills to find high probability trades.
I disagree - the sequence should be - Skill, guts, luck.
Yesterday I took bot a straddle on Goog that, at the time, might have looked stupid to the uninformed. I bot a 310 Nov straddle at 25.70. See attached word.doc for pricing at the time I bot it.
(Earnings were to be issued last night after the close)
Myt rationale was that GOOG would move at least 20 points - either up or down - I did not care which, and if it did move I would make 5 points either way on a 20 point move. (if it did not move, I would lose .50 on spread and another .30 on time deacy for one day)
In other words I was looking at a 1 day risk/reward ratio of .80 loss vs 5.00 gain on a one day trade. I sold the call side on the opening this morning at 35.70 for a 10 point profit and I still hold the puts (sort of a free one month trade).
So... In my opinion, based on this type of trading, luck has very little to do with it.
I forgot - my bias was that GOOG would either miss the estimate, or, make the estimate but dissapoint . Therefore I took the 310 strike when the stock was trading at 308. In retrospect, If I had taken the 300 strike, even though the straddle would have cost 26.40, the trade would have been even better.
So... you can see you can be wrong and still do well on a trade that is well thought out. Of course - no action on the stock would have created a loss. --- But name a day when did GOOG not move, let alone after an earnings release?
So... you can see you can be wrong and still do well on a trade that is well thought out. Of course - no action on the stock would have created a loss. --- But name a day when did GOOG not move, let alone after an earnings release?
Luck has lots to do with your above trade, Straddles very rarely will make money after earnings. Would you be posting if GOOG traded flat like it did 3 months ago? I don't think so.
We are in the middle of earnings what other Straddles do you have in mind? Next time you enter a Straddle, or any option play, post before hand.
3 months ago. A straddle would not have paid off.
SBUX will report November 17th. The Nov options expire on the 19th. After the split, and before the earnings announcement, this same opportunity may be available. I will probably not take the Nov straddle (not enough time left), so I wiil probably take the Dec 30 straddle for a two day trade.
My gut tells me that even though the street is looking for .15/.60 on the split stock, that if they do not report at least .16, the disappointment will cause a 2-4 point two day selloff (after split) that may set up the same risk/reward ratio as seen on GOOG yesterday. If the stock is over 28 1/2 at that time I would probably buy the Dec 30 straddle.
I will post if it sets up.
Thanks for the question.
it's been a while since i took a stats class but i'm pretty sure i'm correct on this. in fact i just rechecked with the hoadley function for probability the index would be down below 101 at expiration and it generated 0.91%
this is true but there are other variables such as changes in IV to contend with. (BTW hoadley spit out the probability as 1.9% of the index going below 101 in 7 days which again reflects the directional aspect).
i should correct myself also because i believe that i underestimated IV when i originally wrote my response. never the less the framework is still correct in that the odds of doubling for four weeks straight are decidedly long.