How about this? http://www.pnas.org/content/102/6/2254.full I do not believe that we are any different from ants when it comes to collective behavior patterns.
As usual, you have missed the point. As the matter of fact OP got the answer or at least an idea of a direction.
We have learned that a very few people here on ET could intelligently discuss options and their properties. Even less of us could share ideas of their predictive power. The purpose of this discussion is to encourage people to learn more about hidden characteristics of options and their collective behavior so they could appreciate the beauty and complexity of option formations. And who knows, may be using these ideas discussed in this thread some of you might discover the "predictive power of options" and make use of it in their trading. For those who are looking for handouts and simplistic answers I don't donate on Fridays!
back to OP question: maybe you need to look at how VIX is built (search wiki for VIX). VIX is a mix of options converted to show expected movement in S&P. "The VIX is quoted in terms of percentage points and translates, roughly, to the expected movement in the S&P 500 index over the next 30-day period, on an annualized basis. For example, if the VIX is at 15, this represents an expected annualized change of 15% over the next 30 days; thus one can infer that the index option markets expect the S&P 500 to move up or down over the next 30-day period. That is, index options are priced with the assumption of a 68% likelihood (one standard deviation) that the magnitude of the S&P 500's 30-day return will be less than 4.33% (up or down)."
I spend hours watching equities/options and lots of data. Yes you do see very interesting patterns emerging. Lots of interesting stuff. Anyhow I am a math/science geek and I like Chaos theory,fractals etc.. But I make my money on the other end
=================== I started to write something like you did,DMO; agree. Random nickname Capital, did start out his theory, with the perhaps carefully chosen words ''Imagine the mythical smart money. '' His use of the word mythical perhaps was not random. What else did we learn?? Well speaking of fish, fish school ,to play on words,; Mr Daryl Guppy[real name] said do not confuse high probability with infallibility. I also would not confuse prediction with probability or high probability also ; big , real practical difference. Maestro had a good but funny warning on CNBC,LOL murray
You are confusing "Natural number" with "Nature"! Other than sharing "Natu" they have nothing in common.
I don't disagree with you, I am probably just not being clear. It is not my theory, just a mechanical relationship that causes a skew when the shape of the models' distribution is different than the shape of the market's perceived distribution. If the market thinks there is say a 30% chance of a 10% loss in the underlying over the next month and a 15% chance of a 10% gain, then there has to be a vol skew because one implied vol can't price both beliefs in Black-Scholes. So I guess I am saying that the smirk in equity index vol means the market thinks there is a higher probability of a big decline than a big gain. On average that is right historically so there should be a smirk, at least most of the time, and more demand for downside protection makes sense if you can't time the market. I think what you are saying is that when the smirk gets more extreme than normal the market is wrong in its prediction and there is actually a smaller chance of a big drop than usual and a higher baseline expected return, which makes sense and doesn't contradict what I was trying to say. Are you observing this in equities or just in crude?