tag:blogger.com,1999:blog-1520302325239963360.post461733584243148306..comments2024-01-23T14:04:29.555-08:00Comments on Risk Laboratory: Ophir Gottlieb: Avon Products (AVP) - Earnings Preview and TradeOphir Gottliebhttp://www.blogger.com/profile/14504557662647338626noreply@blogger.comBlogger19125tag:blogger.com,1999:blog-1520302325239963360.post-3977902689297612372010-07-28T13:10:11.426-07:002010-07-28T13:10:11.426-07:00I put the data into Excel, but we have a Livevol E...I put the data into Excel, but we have a Livevol Excel product which does that as well.Ophir Gottliebhttp://www.blogger.com/profile/02699643319377083669noreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-12471440691399200782010-07-28T13:08:04.054-07:002010-07-28T13:08:04.054-07:00BB,I certainly understand that loss of 169% is no ...BB,<br>I certainly understand that loss of 169% is no way any accurate measure of risk and I agree with your points. I was just calculated based on available data. Of course the "true" result will occur only if we measure infinite times the occurred losses and wins but it's not the option in real life. So my calculation was based solely on what was provided by Ophir :) By the way, is this table of % wins can be generated by Livevol or Ophir put everything with hands ih Excel?Alexeynoreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-83549644411942106392010-07-28T11:15:09.535-07:002010-07-28T11:15:09.535-07:00Well said BB.Well said BB.Ophir Gottliebhttp://www.blogger.com/profile/02699643319377083669noreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-55176647484975390022010-07-28T11:08:15.796-07:002010-07-28T11:08:15.796-07:00Alexey, you are assigning the probability of a los...Alexey, you are assigning the probability of a loss at 1/8, which I dont see anything wrong with that, but its that you are assigning a loss of 169% to that 1/8 chance, it could be much lower or much higher...the point is, depending on what you think, you can come up with YOUR OWN expected return. <br><br>You averaged out the wins to 23% yet you took the last loss of 169% as your expected loss, why not average the last 8 losses? Dont sell straddles for any significant size until you understand, perhaps just stick to purchases? <br><br>So yes, your calculation is correct, if you choose to assign the probability of 1/8th chance of 169% loss... Nobody can well you what the correct probability is. And why must there be a "correct way" to measure the risk? If there is such a thing, dont ya think we'd all be rolling in the dough:) <br><br>Thanks.BBnoreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-57300900321953478132010-07-28T10:47:24.199-07:002010-07-28T10:47:24.199-07:00So we have 8 data points which are pulled randomly...So we have 8 data points which are pulled randomly for a probability measure. We will never see the full measure, we can only guess on our random samples. There could be a 1/1000 chance of 169% loss, but we got it in one of our 8 selections (that would be bad luck). We have to make a guess about the probability measure and extrapolate. My point was that the 169% loss was a "bad luck" outcome. Not bad luck in that it was a loser, bad luck in that it is not representative of the actual measure.<br><br>If there is an expected value you require to make a trade - then you can construct a probability measure that gives you that outcome and then ask yourself if the measure you've created seems likely based on the random data points we get.Ophir Gottliebhttp://www.blogger.com/profile/02699643319377083669noreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-40045361435856431212010-07-28T10:41:50.700-07:002010-07-28T10:41:50.700-07:00You said "There is certainly not 11% chance o...You said "There is certainly not 11% chance of 169% loss", but based on the data presented: 7 wins/1 loss can we do better judgment on probability and amount of loss? Please explain.Alexeynoreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-78936642453141544042010-07-28T10:08:12.470-07:002010-07-28T10:08:12.470-07:00sorry, if we didn't count tomorrows' earni...sorry, if we didn't count tomorrows' earnings prob. win = 7/8, than we end up with $0.02 for expected return - I just don't know what should be used correctlyAlexeynoreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-53159450148086751082010-07-28T10:06:43.960-07:002010-07-28T10:06:43.960-07:00That payout is too discretized. There is certainl...That payout is too discretized. There is certainly not 11% chance of 169% loss; but there is also not a 0% chance of a smaller loss.<br><br>This is a good exercise; determine what expected return you would require to trade and see if your expectations give you that expected return. If so, we call that edge; if not, we call it negative edge. If negative edge is large enough, you may have found a trade in reverse.Ophir Gottliebhttp://www.blogger.com/profile/02699643319377083669noreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-12020412298642959742010-07-28T10:03:50.769-07:002010-07-28T10:03:50.769-07:00I agree, so am I right here we have:if history mea...I agree, so am I right here we have:<br>if history means something at all)is <br><br>win = 23% of price = 3.58 = 0.85 in your table<br>loss = 169% of price 3.6 = 6<br><br>prob. win = 8/9 = 89%<br>prob loss = 11 %<br><br>Expected return 0.89*0.85-0.11*6=0.76-0.66=$0.1<br><br>Is this expected return (if my calculations right) enough for you to consider trade?Alexeynoreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-43996495373061954742010-07-28T09:51:58.739-07:002010-07-28T09:51:58.739-07:00That depends on what probability you put on the ou...That depends on what probability you put on the outcomes. Example: Two outcomes; Win = $1, Loss = -$20.<br><br>Prob (Win) = 99%<br>Prob (Loss) = 1%<br><br>Expected Return = $0.79<br><br>So even with a 1:20 payout, this is a winner in expected value.Ophir Gottliebhttp://www.blogger.com/profile/02699643319377083669noreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-11893469568716894372010-07-28T09:48:04.537-07:002010-07-28T09:48:04.537-07:00just interested - we are looking here for consider...just interested - we are looking here for considerable small gains against infinite losses. Isn't it always a negative sum game in a long run?Alexeynoreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-45037080572331682522010-07-28T08:35:54.325-07:002010-07-28T08:35:54.325-07:00I find upcoming earnings plays on the Calendar Tab...I find upcoming earnings plays on the Calendar Tab; select "All" radio button.<br><br>Then I go through the E&D tab to see if I like selling or buying or skipping altogether. Great question, thanks!Ophir Gottliebhttp://www.blogger.com/profile/02699643319377083669noreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-53476443281376160602010-07-28T08:33:23.265-07:002010-07-28T08:33:23.265-07:00On livevol, AVP did not come up on the earnings sc...On livevol, AVP did not come up on the earnings scan. Is there a way to bring up all earnings candidates? Or how did you find this using Livevol?BBnoreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-67712595834370636642010-07-28T08:27:05.650-07:002010-07-28T08:27:05.650-07:00Buying a put spread rather than buying a put naked...Buying a put spread rather than buying a put naked allows for a trade on some skew while protecting the downside... But, it leaves an uncoved downside.Ophir Gottliebhttp://www.blogger.com/profile/02699643319377083669noreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-420044004516270432010-07-28T08:25:19.704-07:002010-07-28T08:25:19.704-07:00to sell or buy those i thought we are trying to ta...to sell or buy those <br><br>i thought we are trying to take in as much profit as we can from the elevated VOLYossihttp://www.blogger.com/profile/12153661437792873107noreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-89918174923340308112010-07-28T08:21:37.695-07:002010-07-28T08:21:37.695-07:00Correct. There are aother ways to protect. For e...Correct. There are aother ways to protect. For example you could do a call spread and a put spread rather than just a naked purchase.Ophir Gottliebhttp://www.blogger.com/profile/02699643319377083669noreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-63032336586618446202010-07-28T08:20:16.794-07:002010-07-28T08:20:16.794-07:00Hello,Based on your last paragraph by purchasing t...Hello,<br><br>Based on your last paragraph by purchasing the extra insurance it would go down to a credit of $2.00 correct?Yossihttp://www.blogger.com/profile/12153661437792873107noreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-26568042904311870212010-07-28T08:17:44.006-07:002010-07-28T08:17:44.006-07:00Yes, def correct.. In this case the stock price c...Yes, def correct.. In this case the stock price could not have been better; i.e. it pinned to $38, so I shut it down.Ophir Gottliebhttp://www.blogger.com/profile/02699643319377083669noreply@blogger.comtag:blogger.com,1999:blog-1520302325239963360.post-47481503482928981632010-07-28T08:12:38.457-07:002010-07-28T08:12:38.457-07:00Covering the next day in the morning or EOD may ma...Covering the next day in the morning or EOD may make a big difference, the fair value straddle day after is EOD price?BBnoreply@blogger.com