Puzzle

[K-Pia]

What would you do given that
The market has a 60% chance going up,
Inversely, we assume 40% chance going down.

If the market goes up,
You have 50% chance of losing 8 ticks,
Inversely, you have 50% chance of making 16 ticks.

If the market goes down,
You have 40% chance of losing 10 ticks,
Inversely, you have 60% chance of making 31 ticks.

You can Buy, Sell or Run away !

 

[ETcallhome]

What would you do given that
The market has a 60% chance going up,
Inversely, we assume 40% chance going down.

If the market goes up,
You have 50% chance of losing 8 ticks,
Inversely, you have 50% chance of making 16 ticks.

If the market goes down,
You have 40% chance of losing 10 ticks,
Inversely, you have 60% chance of making 31 ticks.

You can Buy, Sell or Run away !

How old are you and what is your life expectency? Without those numbers it would seem pretty silly to put together a long term plan.

 

[K-Pia]

How old are you and what is your life expectency? Without those numbers it would seem pretty silly to put together a long term plan.

It's a one shot game. Not a long term plan.
My long term plan is short SPX and long Rates.

 

[ETcallhome]

It's a one shot game. Not a long term plan.
My long term plan is short SPX and long Rates.

and how long are you planning to live?

 

[i am nobody]

What would you do given that
The market has a 60% chance going up,
Inversely, we assume 40% chance going down.

If the market goes up,
You have 50% chance of losing 8 ticks,
Inversely, you have 50% chance of making 16 ticks.

If the market goes down,
You have 40% chance of losing 10 ticks,
Inversely, you have 60% chance of making 31 ticks.

You can Buy, Sell or Run away !

I will use my energy, and break my head, on things that are directly related to my trading.
Maybe you should do that too? Because it seems that you can still improve your trading a bit.

 

[K-Pia]

That's how I solved it.
Expected losses are equal :
0.4(10*0.6) = 0.6(8*0.5)
But expected expectations differ :
0.4(31*0.4-10*0.6) > 0.6(16*0.5-8*0.5)

I would short.

 

[Handle123]

Why would you assume market going down 40%, if your definition of sideways was broad enough, the 40% could be sideways, so you would have 60% profits and 40% breakeven plus one tick?

 

[K-Pia]

Why would you assume market going down 40%, if your definition of sideways was broad enough, the 40% could be sideways, so you would have 60% profits and 40% breakeven plus one tick?

Nice hijack.

 

[newwurldmn]

It's a one shot game. Not a long term plan.
My long term plan is short SPX and long Rates.

When you say long rates do you mean long bonds or short bonds?

I also would short your original brain teaser.

 

[K-Pia]

When you say long rates do you mean long bonds or short bonds?

I also would short your original brain teaser.

Thanks for showing interest in the teaser =P
Long Rates therefore Short Bonds.
Due to the negative correlation.

Well ... Rates can't really go lower.
And every paper money has ended worthless.
So in the very long term I bet for an Hyper Inflation.
Central banks then will push rates higher and higher.
However I am not invested in that scenario.