Options - Don Fishback ODDS

Discussion in 'Options' started by Quick007, Aug 29, 2006.

  1. Quick007


    Has anyone ever used the option trading method by Don Fishback, or, have any opinion about it? Looking for comments from people experienced with Don Fishback ODDS method.
  2. He is just assuming a Gaussing distribution of prices, and uses the mean historic volatility of a given lookback period as input.

    Trading like this will loose you money! Prices are not Gaussian for long enough periods of time for this to work out consistently. Although folks who do credits spreads/Condors may have a different opinion than mine.

    Taleb has alot to say about this (Black Swans and all.)
  3. just21


    Use the ODDS probabbility cone in metastock, set to two standard deviation, then backtest selling options outside the cone.
  4. "Never bet on a long shot."
    -Frank "Lefty" Rosenthal
  5. Not to pick nits, but this quote says you shouldn't *buy* OTM options.

    Selling OTM options bets AGAINST a long shot.

    But anyway...
  6. You are correct...it is typical of ET members not to think before they post...

    While it is true that the market does not display guassian distribution all the time. It it also true that knowing when it does will make you money...That infomation can be had if one knows enough statistics to test for it...I have suggested the proper reference many times here...I am sure it can be found with use of the search function..

    Good luck
  7. I found the start of an interesting thread about GARCH, which devolved into a flame war by the end (ah, Elite Trader, so reliable).

    How are you making using of GARCH in your analysis? Have you tried R? Are you using S+ FinMetrics? Is it an API that you've developed an app on top of?
  8. If you sell OTM options, then risk is unlimited. By spreading off that risk and buying further OTM options for example, then you are also making a long shot bet that the event will happen.

    The problem is that OTM strikes have such little payoff.

    payoff = probability*(reward/risk)

    It's the whole "picking up pennies in front of a steamroller" argument.

    Frank Rosenthal was a pretty smart dude at the art of book making (ignoring the fact that alot of times the games were rigged to some degree.) However, his way of dealing with the odds and betting on "random" outcomes I feel is applicable to options trading.
  9. Ok, so the market exhibits leptokurtosis, GREAT! How does that make me money?

    So, your second sentence suggests that the distro changes from lepto to gaussian to platy and back again? So, are you suggesting to construct a portfolio based on the changing distro?

    Am I in the ballpark?
    #10     Aug 29, 2006