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Colin,
this "assumption" of yours is a strange beast for sure, because,
chameleon-like, it seems to change its color with each new post. First it
was about the time decay of options, then about the behavior of a collar,
and now the topic is the volatility of stocks. Granted that there is a
connection between all of them, yet these problems do differ from a
theoretical viewpoint, as well as in practical application.
Be this as it may, here is a rough-and-ready test of the assumption below
which is relatively straightforward; a simple spreadsheet should suffice.
Load a stock's daily OHLC historical data for as far back as you care to do
your test. For every day during this period have the program check whether
the MaxHigh of the next 30 days was greater than today's price plus strike
distance, or not; and do the same for the downside. You have to take into
account the different strike distances that vary with the price of the
stock. Count the number of yeas (strike was exceeded above or below) vs. the
number of nays for this stock, and it should give you a good first
impression. You might do this for a universe of stocks such as the SP500,
and calculate an average.
Of course, this primitive method can be much refined with all the weapons of
descriptive statistics at your disposal, but I won't go into that here.
Hope this helps, and I have correctly understood your assumption this time.
Best,
Michael Suesserott
-----Ursprüngliche Nachricht-----
Von: cwest@xxxxxxxxxxxx [mailto:cwest@xxxxxxxxxxxx]
Gesendet: Thursday, May 24, 2001 22:47
An: Omegalist
Betreff: RE: need some ideas to (dis)prove an assumption
Mike,
I appreciate your input, and believe I clearly understand it, but the
essence of what I'm attempting to (dis)prove is an assertion that stocks
infrequently rise by more than the equivalent of one strike above their
price within 30 days. That is, on 4/23 the price of a stock was say $50, and
by 5/18 it was less than $55.
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