Earnings-Price Divergence Always Followed By Negative Equity Returns [View article]
Brian, for an investor i believe the more relevant data is the average time to the market peak from the maximal divergence time. do you have that data as well?
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the AAII crowd can be modeled by combining two elements: smart money and dumb money. in a bullish move both will be bullish creating high bullish ratings. however, before correction the smart money becomes bearish causing a decline in sentiment. this divergence can be seen in all the corrections on the chart above. therefore a sharp decline in bullish sentiment for the aaii survey after reaching multi-month highs isn't bullish. investors intelligence survey doesn't have a smart money element however...
bbro, the p/e10 should be used to predict CAGR of the next 10 years as Hussman does. as you can see from the chart it is no merit in predicting the next 2-3 years. so your point is valid, and maybe more context should be added to the article, but it does not disproof the value of CAPE.
The Only Way To Successfully Use Options Over The Long Term [View article]
many writers here already emphasized that it is the expected profit and not the probability of success that determines the long term profitability of a specific strategy. so i repeat my request again: Andrew, what is the expected profit of your call spread?
The Only Way To Successfully Use Options Over The Long Term [View article]
that is not necessarily true. the reason is time value. time value always work for the sellers and in this sense, they are the casino against the buyers of options.
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well, merck is still conducting several studies with the drug for other indications and in combo, and didn't say they were stopped, so some hope exists, but this was the biggest bet.
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so i'll pose you the same question i posed andrew when he first suggested this trade: what is the expected profit of a trade that involves selling an OTM call with a delta of 0.15, and buying an OTM call with a strike 2 dollar above and a delta of 0.05?
Why I Sell Options To The Speculative Crowd [View article]
Erick, he's talking about credit spreads not selling naked calls. the downside is also limited. also, he trades only etf of wide indexes, not specific stocks, so wild swings are rather uncommon.
Andrew, you still havn'r written how you calculate the expected profit, not the probability of max profit, from the trades you mentioned. it is my conviction that the expected profit is the important measure of a trade success as it takes into acount the tails of the trade as well. a trade can work 99% of the time, but if the loss in the 1% that it doesn't is 1000 times the profit you will still be wiped out. I know that bear call spreads have a positive expected profit, but you do not disclose it and it's definitely not the max profit.
Stop Guessing And Learn The Statistical Way To Invest [View article]
my math is off only because i didn't address the slope of the spread. I would like to know how else is it wrong. the expected value is the 15% of success times the max win - 5% of loss times max loss+the integral over the slope of the probability times the expected win/loss-the commissions. I would like to know what's wrong with my calculation. the expected value is the right way to calculate outcome of probable events. Nassim Taleb discusses this a lot in his books.
Stop Guessing And Learn The Statistical Way To Invest [View article]
Andrew, my only reservation is that you didn't calculate the expectency of your trade. sure, something can work 85% of the time, the question is how many wining trades will be wiped out with a bad one? in the example above, 0.25*0.85-1.75*0.05=0.125 minus comissions. so the expected value of this trade is half of what you suggest. this is also why this strategy can work only with assets that are liquid. a non liquid asset can move through the upper strike at once, not willing the trader any chance of unwinding in advance.
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you still havn'r written how you calculate the expected profit, not the probability of max profit, from the trades you mentioned. it is my conviction that the expected profit is the important measure of a trade success as it takes into acount the tails of the trade as well. a trade can work 99% of the time, but if the loss in the 1% that it doesn't is 1000 times the profit you will still be wiped out. I know that bear call spreads have a positive expected profit, but you do not disclose it and it's definitely not the max profit.
Stop Guessing And Learn The Statistical Way To Invest [View article]
Stop Guessing And Learn The Statistical Way To Invest [View article]