Abstract
Traders improve outcomes by defining objectives in advance, based on a complete and realistic appreciation of opportunity for profit as well as risk of loss. The value of implied volatility is questionable. Many traders believe that volatility leads price, when in fact, volatility is the result of price behavior. Volatility cannot be estimated without careful analysis of the underlying price and its behavior pattern. Closely associated with this reality is the importance of studying options strikes and their proximity to current underlying price levels and trends. Relying on historical volatility is more accurate and more reliable than accepting the assumptions of implied volatility; and an effective “probability matrix” can be constructed based on historical volatility and expressed through the overlay of Bollinger Bands with the underlying price.
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Notes
- 1.
Fortunately for traders relying on chart indicators and momentum oscillators, indicators such as RSI are calculated automatically and added to the chart. The formula is included here for the purpose of demonstrating the components of the indicator, in order to enhance understanding of exactly what it reveals.
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Thomsett, M.C. (2017). Trading Goals and Objectives. In: The Mathematics of Options. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-56635-1_1
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DOI: https://doi.org/10.1007/978-3-319-56635-1_1
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Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-319-56634-4
Online ISBN: 978-3-319-56635-1
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