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Many of the current options "strategies" taught by various options gurus are based on Black-Scholes notions of "volatility". I suggest caution in applying such option price "models". Stated simply, the assumption of Gaussian distribution of price changes is incorrect. Thus, the Black-Scholes model is simply bogus. (The more accurate price change distribution, with its infinite "fat tails", negates Black-Scholes as a valid model.)
For a more complete discussion of this, see "Nonlinear Pricing", by Christopher May.
The effect of applying the Black-Scholes assumption in practice is illustrated by the Long-Term Capital Management fiasco. Scholes and Merton (Black is deceased) used the Black-Scholes assumptions at LTCM. The models "worked" until a series of "fat tail" events occurred. Read "When Genius Failed", a book recently mentioned on this list, for more on this.
Be careful out there...
Good trading,
OM
At Thu, 19 Jul 2001 14:25:11 -0500, Brian Eckert <bjeckert@xxxxxxxxxx> wrote:
>I attended the Optionetis workshop this week. A few of you expressed
>interest in what I thought of it.
>
>They present a good, clear explanation of how to make low risk, high-reward
>options trades. The trades are categorized, the risks are explained, they
>teach you the exact way to place the order, etc.
>
>I have not started to trade using these techniques, but I am
>encouraged. Their "calendar spread" technique averaged a 300% return on
>equity last year.
>
>I was bothered by one thing. Throughout the seminar, they pitched their
>other seminars, web site, newsletters, etc. I would have been a bit more
>comfortable if the seminar came with a 4 week free subscription to their
>news letter.
>
>A friend of mine attended. He recently purchased OptionVue. In looking at
>the "platinum" service of their web site, he said that he would have
>preferred using it to OoptionVue.
>
>You may also be wondering if I think George is honest, i.e., does he use
>these techniques in his trading, or he is just hawking a system for the
>sake of the money he can raise from these workshops. I think he really
>trades them.
>
>Hope this helps.
>
>I'll let you know what success I have when I begin trading options.
>
>
>
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