Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Some Investors Will Never Understand… And That’s Okay

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I recently went back and forth with a gentleman who claimed that there are no statistical advantages in investing.

I asked him if he had ever used credit spreads or was familiar with the term probability of success. I wondered if he was familiar with the Black-Scholes model or binomial models in general. Did he have a sound grasp of mean-reversion or standard deviation.

No, he just wanted me to read a chapter from a book. As if in that one chapter, the author was able to defy mathematical science, more specifically probabilities.

Believe me, I get it. I understand that self-directed investors have been accustomed to listening to fundamentally and technically-based information. I understand that the curve-fitting is what gives a false edge to what is otherwise a statistically-inept way to invest. I get it.

But that doesn't mean that I have to agree with it. No one wants to hear that what they have been doing for years was all for naught. Again, I get it.

The gentleman then proceeded with the typical machismo..he has two decades in statistics, and that he has a viewpoint with "lots of education and experience behind it." Unfortunately, to me those are just words. It doesn't matter to me what you know. I'm not trying to test anyone's knowledge. I am sure the gentleman is intelligent and well-read.

Unfortunately, he doesn't fully understand statistics or probabilities when it comes to investing, more specifically when trading options. I discuss this all the time with my better half who has a degree in Chemical Engineering from McGill, a masters in Bio-statistics from Columbia and more recently a Ph.D from none other than Harvard. I say this not as bravado, but to prove a point. I try to speak and more importantly teach others how to use probabilities using sound options strategies…aka. credit spreads. And I try to convey my message based on fact, not emotion. Having a statistical genius, who knows absolutely nothing about investing, allows me to discuss statistics in a way that has no bias. She doesn't care what anyone thinks, she only cares about the probabilities…the statistics. Ditto.

In the end the gentleman kept touting his so-called knowledge, yet he has never sold one contract of an out-of-the-money credit spread. In fact, he had never traded options.

All of this is okay. It's not my job to try and convert every investor to my way of thinking. That's not why I am do this for a living. I just want to teach investors how to trade using probabilities. And I want to teach investors the best probability-based strategies out there. Verticals, condors, strangles, naked puts and calls. Not all of these strategies are okay with all investors as elements of risk-management must be understood…but again, that is why you are here…to learn the ins-and-outs of high-probability options strategies.

It is my hope that all of you can take something valuable from my discussions. It would be great if you could address any questions that you might have in the comments section of each post. That way, we could all learn from each other in a dynamic manner.

One more thing, I just wanted to thank all of you for the continued support, the response has been overwhelming recently. After years of talking about high-probability strategies, I can finally see a light at the end of the tunnel. Investors are starting to understand the power of probabilities. I am just thankful and proud that I am a part of it.

If you haven’t, join my Twitter feed or Facebook.

Also, I have officially opened up my strategies to the public.  If you are a believer in a statistical approach towards investing please do not hesitate to try one of my options strategies. I use simple mean-reversion coupled with probabilities for each and every trade. Give it a try, it’s free for 30 days.

Kindest,

Andy

Broker/Dealer Correlation

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The broker/dealer index has recently exhibited an interesting behavior when it gets to about $109.70; it tends to slump afterward, and it carries the market with it.

The broad market and the $XBD used to move totally in synch, but thanks to Federal Reserve perversions and distortions, the SPY inhaled a lot of helium around September 2010 and has been much more prone to rises than $XBD ever since. In spite of that, the gravitation pull is still very present. Take note:

0211-xbdSPY

The green tint shows when the $XBD hits resistance, and the magenta tint shows that point in time on the SPY (which, in the past two instances, preceded a big tumble). We are getting very close to the line again on $XBD, so it's worth noting. (As if – heh – anything, including a worldwide nuclear confrontation, would cause a market drop lasting more than 30 minutes. Ho! Ha-ha!)

Patience Please

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Long-time readers know how loyal I am to Slopers and how productive I normally am. In the course of a weekday, I typically:

+ Look at 1500 charts;

+ Put up eight to ten posts;

+ Actively trade a large account;

+ Deeply participate in the ridiculously active schedule of a young family;

I am able to do all this because there is a certain rhythm to my day which, if changed, makes me fall to pieces. This is one such day.

So I'm still trying to catch up and get my act together. My latest challenge? Dealing with a clogged sewer main which, forgive me, has to come before the charts and ideas you get.

So be patient with me; today is not my finest. I'll get back to normal at some point.

0211-fan

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