You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Sharing+Discuss Option Trades/Strategies
- Thread starter Put_Master
- Start date
Quote from RobtF:
Probaility of profit is 73% using average IV and Black-Scholes option pricing model.
Given that the IV on CB has dropped by 2/3 since mid Nov,... dropped by 1/2 since Dec,... and has been in an obvious down trend for the past several months, can you define what number you used for "average IV"?
Given that it was only an 8 week initial contract, with only 45 days now remaining until expiration, I'm wondering if you may have selected a higher "average IV" than might be relevant for this down trending IV stock.
Putz Master
Quote from Put_Master:
Given that the IV on CB has dropped by 2/3 since mid Nov,... dropped by 1/2 since Dec,... and has been in an obvious down trend for the past several months, can you define what number you used for "average IV"?
Given that it was only an 8 week initial contract, with only 45 days now remaining until expiration, I'm wondering if you may have selected a higher "average IV" than might be relevant for this down trending IV stock.
Putz Master
In terms of evaluating "probability of profit", I think one should also consider the downside tech support CB has demonstrated in the $35 area,... per the 1 year chart below.
You need to go back 5 years to see the last time CB tested the $35 area.
http://finance.yahoo.com/q/bc?s=CB&t=1y&l=on&z=m&q=b&c=
Putz Master
Quote from Put_Master:
In terms of evaluating "probability of profit", I think one should also consider the downside tech support CB has demonstrated in the $35 area,... per the 1 year chart below.
You need to go back 5 years to see the last time CB tested the $35 area.
http://finance.yahoo.com/q/bc?s=CB&t=1y&l=on&z=m&q=b&c=
Putz Master
CB traded below 35 in March so you need not waste time looking back 5 years to see when the last time traded there was.
In terms of probability⦠There is no variables in the calculation of a probability for âtechnical supportâ or âtrendâ. Those are subjective measures and have no place in a calculation of a probability.
<<< CB traded below 35 in March so you need not waste time looking back 5 years to see when the last time traded there was. >>>
I did not say it never dropped below $35.
I discussed the $35 "area".
Would you like to share with with the board, how many "actual days" it traded below $35 over the past year? Two years? Three years? Four years?
<<< In terms of probability⦠There is no variables in the calculation of a probability for âtechnical supportâ or âtrendâ. Those are subjective measures and have no place in a calculation of a probability. >>>
How can you state that "there are no variables", when he admitted he used an AVERAGE IV for his 73% probability calculation?
In other words, he literally made up a number, based on the prefered criteria he chose to use.
Thus the reason, a decision to risk ones cash on a trade, based on a probability calculation, is not only inadequate, it's also somewhat meaningless, without considering numerous other criteria and variables. Some subjective. Others factual.
The probability calculation is merely an investment tool. No different than one who considers a companies fundamentals and technicals. Experience is also a tool.
Some tool are subjective and others are factual.
I classify the calculation under discussion as subjective.
I'd like to know what "average IV" number xflat prefers to use for his probability calculation of CB,... as well as an explanation of how he arrived at that subjective number.
I think you'll agree, an IV number selected for the calculation, without an explanation of how it was arrived at, is..... subjective?
Putz Master
I did not say it never dropped below $35.
I discussed the $35 "area".
Would you like to share with with the board, how many "actual days" it traded below $35 over the past year? Two years? Three years? Four years?
<<< In terms of probability⦠There is no variables in the calculation of a probability for âtechnical supportâ or âtrendâ. Those are subjective measures and have no place in a calculation of a probability. >>>
How can you state that "there are no variables", when he admitted he used an AVERAGE IV for his 73% probability calculation?
In other words, he literally made up a number, based on the prefered criteria he chose to use.
Thus the reason, a decision to risk ones cash on a trade, based on a probability calculation, is not only inadequate, it's also somewhat meaningless, without considering numerous other criteria and variables. Some subjective. Others factual.
The probability calculation is merely an investment tool. No different than one who considers a companies fundamentals and technicals. Experience is also a tool.
Some tool are subjective and others are factual.
I classify the calculation under discussion as subjective.
I'd like to know what "average IV" number xflat prefers to use for his probability calculation of CB,... as well as an explanation of how he arrived at that subjective number.
I think you'll agree, an IV number selected for the calculation, without an explanation of how it was arrived at, is..... subjective?
Putz Master
I will re post what I said for those (PM) who have issues with reading comprehension. Probabilities are simple calculations there are NO variables in the equation for probability which encompass items such as trend or technical support which putty believes there should be.
The previous poster said he used and âaverage IVâ nowhere did I say that was accurate, nor did I advocate making up any average volatility. I stated very clearly that any âsubjectiveâ number or idea has no place in the calculation of probability.
As far as your cursory technical evaluation you clearly stated you need to go back 5 years to see the last time CB tested the 35 area. I simply pointed out that CB âtestedâ and traded below 35 a scant 2 months ago not the incorrect 5 years you claimed.
Probability is not a tool it is a calculation you may chose to use the results of that calculation as a tool, but it is significantly different then your cursory guesses at technical support or any of the purely subjective guesses you make on a company.
The previous poster said he used and âaverage IVâ nowhere did I say that was accurate, nor did I advocate making up any average volatility. I stated very clearly that any âsubjectiveâ number or idea has no place in the calculation of probability.
As far as your cursory technical evaluation you clearly stated you need to go back 5 years to see the last time CB tested the 35 area. I simply pointed out that CB âtestedâ and traded below 35 a scant 2 months ago not the incorrect 5 years you claimed.
Probability is not a tool it is a calculation you may chose to use the results of that calculation as a tool, but it is significantly different then your cursory guesses at technical support or any of the purely subjective guesses you make on a company.
<<< The previous poster said he used and âaverage IVâ nowhere did I say that was accurate, nor did I advocate making up any average volatility. I stated very clearly that any âsubjectiveâ number or idea has no place in the calculation of probability. >>>
Thank you for clarifying.
Since you believe his "average IV" is subjective, inacurate and meaningless,... and since you believe there should be no subjective variables in the probability calculation, what accurate number would you have used in place of his average IV?
<<< Probability is not a tool it is a calculation you may chose to use the results of that calculation as a tool, but it is significantly different then your cursory guesses at technical support or any of the purely subjective guesses you make on a company >>>
My use of L-T tech support to assist in the selection of strike price, is not a "guess". It is an "observation".
That observation is an investment tool.
An investment tool just like the use of a "probability of a profit calculation".
Neither one is written in stone. They are both open to subjective influences and/or variables.
Speaking of subjective variables, what number will you be using to replace his subjective "average IV" variable?
I'd really appreciate an accurate probability %, since you stated his 73% analysis was inacurrate.
Putz Master
Thank you for clarifying.
Since you believe his "average IV" is subjective, inacurate and meaningless,... and since you believe there should be no subjective variables in the probability calculation, what accurate number would you have used in place of his average IV?
<<< Probability is not a tool it is a calculation you may chose to use the results of that calculation as a tool, but it is significantly different then your cursory guesses at technical support or any of the purely subjective guesses you make on a company >>>
My use of L-T tech support to assist in the selection of strike price, is not a "guess". It is an "observation".
That observation is an investment tool.
An investment tool just like the use of a "probability of a profit calculation".
Neither one is written in stone. They are both open to subjective influences and/or variables.
Speaking of subjective variables, what number will you be using to replace his subjective "average IV" variable?
I'd really appreciate an accurate probability %, since you stated his 73% analysis was inacurrate.
Putz Master
Quote from Put_Master:
[B ?
My use of L-T tech support to assist in the selection of strike price, is not a "guess". It is an "observation".
That observation is an investment tool.
An investment tool just like the use of a "probability of a profit calculation".
Neither one is written in stone. They are both open to subjective influences and/or variables.
Putz Master [/B]
As has been stated many times to you on all of the boards you infest probability calculations are set in stone and have no subjectivity.
Quote from xflat2186:
As has been stated many times to you on all of the boards you infest probability calculations are set in stone and have no subjectivity.
Glad to hear it. I only want accurate numbers written in stone used, to evaluate the chances of my July CB investment being profitable. What objective number written in stone will you be using to replace his subjective "average IV" variable, written in sand?
Again, my point is, whether its the use of a %P/P, tech analysis, fundamental analysis, an analyst upgrade, earnings estimates, IV, ect.... they are all subjective variables, open to change and different interpretation. Nothing is written in stone. That's why next weeks interpretation may differ than last weeks.
Putz Master
I suggest you learn how to calculate probabilities, there are no subjective variables.
I have no particular interest in your trade other than making sure anyone who happens along this thread is not fooled into thinking that your subjective guesses in things such as trends or t/a has any bearing on the calculation of probabilities.
I have no particular interest in your trade other than making sure anyone who happens along this thread is not fooled into thinking that your subjective guesses in things such as trends or t/a has any bearing on the calculation of probabilities.