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Mark correctly points out:
> So what matters to daddy deep
> pockets is Expiration to Expiration. Otherwise Mr. DP shouldn't be
> playing around with naked positions.
So, I went back to to the drawing board and looked at closing prices on
expiration day. Well, not exactly.... I just did the weekly close on the
third week of the month without trying to get too fancy about holidays,
etc. I tested SPX from 4/82 (when the futures started trading) to
present and looked at the 1 month and 3 month net change. The data shows
the strong bullish bias of the SPX. Of course, what it doesn't show is
how deep DP's pockets would have to be to hold the position for that
long. :-) But, at least it gives you some statistical idea of what
strikes to use for a high probability strangle.
1 Month Change
Median 1.4%
50% odds between -0.9% and 3.6%
90% odds between -6.0% and 7.8%
Biggest moves -14.4% and 14.0%
3 Month Change
Median 3.4%
50% odds between -0.1% and 7.8%
90% odds between -7.3% and 16.3%
Biggest moves -28.0% and 21.2%
--
Dennis
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