You are too kind to Mr T. The quoted advice is a disgrace. It's either the writing of an idiot, or more likely the words of someone trying to convince people to buy his system. Despicable beyond words. Either that or ignorance. Mark
How do you know that for Events trading using straddles, is there any statistical support? How about major law suits in particular, I think it can be fairly High probability profitable.
Slow down. In reply to a comment that straddles CAN (meaning, 'it's possible') be a high profitability game, I responded that straddles CAN (meaning 'it's possible) be a low profitability game. How can you pick an argument with that? And in response to your specific idea of 'Events' trading, as you know option prices are pumped for such events, making it even more difficult to succeed. I never said it was impossible. In fact, I never said it was unlikely. All I said was that it is <i>also possible</i> that trading straddles can be a low profitability - i,e., a money-losing strategy. So, I'll ask: Are you saying that you believe events trading IS (as opposed to can be) a strategy that has a high probability of being profitable? If you say 'yes' then I strongly disagree - and that's without statistical evidence. Mark
http://www.cluteinstitute-onlinejournals.com/PDFs/508.pdf "The current study investigates whether abnormal returns may be gained by purchasing a straddle position prior to a verdict or settlement announcement in a lawsuit. The basis for the hypothesis stems from behavioral financeâmore specifically, the Overreaction Hypothesis. Using CAPM expected rates of return and comparisons of 31 lawsuit firmsâ straddle returns, three new straddle trading strategies are devised. Within the sample of lawsuits, abnormal returns are evident for the three strategies. The results and their implications support behavioral finance and the Overreaction Hypothesis and thus refute the Efficient Markets Hypothesis."
I do not know exactly what the "Overreaction Hypothesis" is, but suspect here it means a natural language claim. Is it not clear that the market both overreacts and is efficient? Both kinds of actor are present in a crowd.