What is more difficult? Predicting t or t+x ?

Discussion in 'Options' started by earth_imperator, Jun 3, 2023.

What is more difficult to predict:

Poll closed Jun 10, 2023.
  1. The market index of the next trading day at EOD ?

    3 vote(s)
    33.3%
  2. The market index at EOD in 2 months ?

    6 vote(s)
    66.7%
  1. I think I made an important discovery, but which most people simply seem to ignore :)

    What is more difficult to predict:
    the market index of the next trading day at EOD, or
    the market index at EOD in 2 months?


    And which of them is more rewarding?
    And how much percent or times more rewarding over the other?


    Is this maybe a flaw in the machinery of the universe? :)

    predict.png
     
  2. Sekiyo

    Sekiyo

    Tough to predict if the next toss is going to be head or tail. Easier to predict the ratio over the long run.
     
    Lou Friedman likes this.
  3. panzerman

    panzerman

    Price is random pink noise with stochastic amounts of skew and kurtosis. However, even that model is too simplistic. So, to somewhat answer your question, price prediction is a probabilistic problem. For the most simplistic and most flawed way of predicting price, see attached.
     
    M.W. likes this.
  4. M.W.

    M.W.

    Every additional millisecond adds more stochasticity. The absolute foundations of Ito calculus establish that fact.

     
  5. M.W.

    M.W.

    Agree, it's never about point predictions. It's about probability cones. And the further out, the wider the cone, hence the lower the predictability.

     
    Sekiyo and rb7 like this.
  6. But then why is the reward much much lower for such a hard to predict event in the future?
    Isn't it weird/unintuitive/illogical?
     
  7. M.W.

    M.W.

    What reward exactly, you need to be more specific.

     
  8. The reward in long call options trading for a shorter DTE is (much) higher than for a longer DTE, when all else equal. Related: 0DTE.
     
  9. M.W.

    M.W.

    Not true at all, what do you base your claim on?

     
  10. taowave

    taowave

    Ild like to see EI's backtesting approach,but it appears (from my first round of backtesting) hes correct..I havent looked at 0 DTE,I started at 5 DTE,30 delta,25% stop,purchasing at different time intervals


     
    #10     Jun 5, 2023