The writings and life work of Ed Thorp, professor at MIT, influenced many of my notions of ID (though Thorp and Shannon are not ID proponents). I happened upon a forgotten mathematical paper by Ed Thorp in 1961 in the Proceedings of the National Academy of Sciences that launched his stellar career into Wall Street. If the TSZ regulars are tired of talking and arguing ID, then I offer a link to Thorp’s landmark paper. That 1961 PNAS article consists of a mere three pages. It is terse, and almost shocking in its economy of words and straightforward English. The paper can be downloaded from:
A Favorable Strategy for Twenty One, Proceedings National Academy of Sciences.
Thorp was a colleague of Claude Shannon (founder of information theory, and inventor of the notion of “bit”) at MIT. Thorp managed to publish his theory about blackjack through the sponsorship of Shannon. He was able to scientifically prove his theories in the casinos and Wall Street and went on to make hundreds of millions of dollars through his scientific approach to estimating and profiting from expected value. Thorp was the central figure in the real life stories featured in the book
Fortune’s Formula: The Untold Story of the Scientific Betting System that Beat the Casino’s and Wall Street by William Poundstone.
Poundstone’s book doesn’t actually go into detail what formulas actually work in today’s markets because once something works well, it stops working once everyone else figures it out. Thorp’s only published work on how to make money on Wall Street became obsolete and he had to find new avenues of success with secrets he will take with him to the grave….But for those interested, here is Thorp’s only published book on how to make money on Wall Street. As I said it is now obsolete, but it showcases Thorp’s genius and insight. It used to retail for $300 used on Amazon, but then Thorp offered a PDF copy for free:
BEAT THE MARKET
A Scientific Stock Market System.
So if you want a change of pace from the usual arguments over ID, I offer Thorp’s work and you can skip the rest of what is written below since it is my version of ID inspired by Thorp and Pascal.
Though I had followed Thorp’s work on and off for 10 years, I only recently discovered Thorp’s 1961 article while preparing my own draft of a paper that encapsulates my version of Intelligent Design presented at the Blyth Institute’s “Alternatives to Methodological Naturalism Conference” (AM-NAT 2016). I present to the TSZ readers a draft of a paper that I’m submitting as part of the AM-NAT 2016 conference proceedings. AM-NAT 2016 was a conference organized and mentioned by JohnnyB at TSZ and UD. So if you want to argue ID instead of discuss Thorp’s work, that’s ok too.
I got fascinated by the body of math surrounding expected values partly as a result of Thorp’s work. Because of this body of math, I concluded ID theory has been focused too much on information theory and the 2nd law of thermodynamics, and I’ve argued this is a misguided approach. A more clear cut way to frame the probability arguments is to leverage expected values and the law of large numbers and apply similar mathematical approaches, not the approach laid out by Dembski and his almost intractable conception of specification and CSI.
My approach to the question of ID at the personal and practical level has been more along the lines of Pascal’s wagering ideas than trying to make absolutist assertions about reality. Pascal’s wagering ideas were not limited to the theological questions of heaven and hell, but were originally developed to answer theoretical questions about fair values of wagers in gambling games. His solutions using his notion of “expected value” became foundational in probability and statistics, and the notion of expected (or expectation) values has found its way into the realms of physics, chemistry and finance, etc. I’ve framed ID vs. Naturism debate at a personal and practical level more in terms of what is to be gained if ID is right and what might be lost if ID is wrong and how to move forward in science without formal resolution the question of ID.
In my paper, I focused on a practical (not theological) dimension regarding the NIH’s half-billion dollar research investment into the ENCODE and RoadmapEpigenomics projects. Evolutionary biologist Dan Graur has labeled the ENCODE project leaders “crooks” and “ignormuses” and likened the chief architect of ENCODE, Ewan Birney, to Saddam Hussein. Even money aside, there is an issue of bragging rights as to which group of scientists (ENCODE vs. Gruar) should be praised and which group will have egg on their faces after all the dust settles.
To my surprise, the fight over ENCODE spilled over into a fight over what I thought was a rather innocuous article in the New Yorker that promoted the chromatin-centric viewpoint of the epigenome. I did not realize there was a camp (for lack of a better name, I’ll call them the dinosaurs or the transcription-factor proponents or gene-centrists) that was furious at the chromatin-centrists. ENCODE is not only labeled as promoting an “evolution-free gospel” (verbatim words used by rival scientists in a peer-reviewed publication), but they are also not exactly liked by the gene-centrists for their chromatin-centric viewpoint of the epigenome. Creationists and IDists are more sympathetic to the chromatin-centrists, with the qualification that creationists and IDists in general are more favorable to all forms of non-DNA somatic and transgenerational inheritance mechanisms that may reside outside DNA be it organelle, structural, glycomic or whatever “-omic” inheritance devices that may be out there, not just chromatin based mechanisms.
I’ve qualitatively argued the favorable wager in practical terms is on ENCODE, not on evolutionary theory. Most of the paper is rehash of debates I’ve had here at TSZ, so the material is nothing new. It can be said, my paper is really a product of the debates I’ve had at TSZ. The interactions here have helped provide editorial and technical improvements. The paper is still a draft, the figures and formatting will be cleaned up by the myself, reviewers, and the Blyth Institute before it is published in the AM-NAT 2016 conference proceedings. This draft still has a lot of cleanup needed, so I’m posting it to invite improvements. Some of the material might later be reworked as reading material for the high school home school and/or creationist biology students in college. I don’t consider the paper a professional offering, but a way to codify some of my ideas for later reference.
For those tired of reading and arguing what I’ve posted before and have no inclination to read my paper, I provided a link to Thorp’s paper in the chance it may be of passing interest and a change of pace to some readers in this blog.
But for those interested in my paper, here it is:
Gambler’s Epistemology vs. Insistence on Impractical Naturalism: The Unwitting Half-Billion Dollar Wager by the NIH Against Evolutionary Theory.
ACKNOWLEDGEMENTS
Thanks to all at TSZ who have contributed to the refinement of the ideas in my paper. Thanks to the admins and mods of the skepticalzone hosting my postings. TSZ has been a place where I’ve had the chance to receive critical and editorial feedback on materials I’m publishing in various venues.
PS
I had the opportunity to put in practice some of Thorp’s theory in the casino and so did a group of Christians. Their story is documented in the DvD Holy Rollers. I’m listed in the credits of the Holy Rollers documentary.
Here is the trailer. Featured in the trailer is Pastor Mike and other pastors who were part of the Holy Rollers:
fifth:
Patrick:
For a lifetime.
stcordova,
Again, Sal, you are only embarrassing yourself. All those protein comparisons are exactly what I would expect to see based on the standard phylogeny. That you think you are arguing against me there only shows that you don’t understand something crucial, perhaps multiple somethings.
Yes, of course the zebrafish is closer to the chicken than the lamprey. That’s because the zebrafish and chicken share a more recent common ancestor with each other than with the lamprey. “Fish” are paraphyletic, if you know what that word means, and paraphyletic to tetrapods. Tetrapods, therefore, are descended from “fish”. “Fish” as commonly understood refers to teleosts, lungfish, sharks, and yes, even lampreys. You seem to be using it only for the first group.
Who spoke cavalierly about slavery. It’s you who mock and minimize it by ignoring spiritual slavery.
You also flippingly dismiss the experiences of all the millions who owe their freedom to Christ and his mission.
You need to understand that abolishing slavery is what Christianity is all about it’s why Christ came
quote:
“The Spirit of the Lord is upon me, because he has anointed me to proclaim good news to the poor. He has sent me to proclaim liberty to the captives and recovering of sight to the blind, to set at liberty those who are oppressed,
(Luk 4:18)
end quote:
I would suggest that your cavalier attitude warrants that you experience slavery but the reality is you already are doing that you just don’t know it.
It’s called Stockholm syndrome and I was there once as well
peace
It’s not my theology it’s the theology of the author. He has the right to define his terms.
It’s you who are changing meanings when you don’t allow him to do so.
peace
It’s the people on this forum who have equivocated the slavery of the ancient near east with the horrible things that occurred in America.
I can’t think of anything more cavalier than that
peace
It takes a mind perverted by religion to argue that an entire chapter full of crap like this…
…is “vital”, while a sentence like this…
…isn’t even worth uttering, because slavery is only “temporary and local.”
Fundagelicals don’t seem to realize that naming God as the author of the Bible is a terrible insult. Why blame him for it? It was obviously written by humans, not God, and it exhibits all of their flaws.
It’s amusing to imagine someone like fifth standing before God on the day of judgment, stammering when God asks him incredulously, “You actually thought I wrote that shit?”
An interesting and relevant essay by David Barash in Aeon:
Describe the life of a biblical slave. Demonstrate that it was not so bad.
But it’s good to know that FFM supports the idea that one person can literally own another person as long as the owner does not beat the slave too hard.
So far so terrible for FMM
FMM, do you happen to know who said that?
He? You mean god? You do know that the bible was written by humans, many different humans over a long period of time?
Slavery might have been standard at the time, but a few words directly from god could have changed all that, no?
Wikipedia notes that modern slavery is a multibillion-dollar industry with estimates of up to $35 billion generated annually. The United Nations estimates that roughly 27 to 30 million individuals are currently caught in the slave trade industry.
So, seems that your Christ did a terrible job of abolishing slavery. If only he’d said something other than to beat them nicely! You know, like don’t own people m’kay.
Not those 27 million people. Why do only some get freed? Does christ only care about americans?
In fact it’s you that flippantly dismiss the misery slavery has caused throughout the ages with your attempts to dismiss the fact of it in the bible.
No doubt people had to be enslaved their entire life just so christ could come free their slave descendents many hundreds of years later.
Somewhat cold comfort to know that slavery is bad and christ is going to fix it all but not for you, you’ll have to be a slave until you die otherwise it won’t be the big reveal that christ the showman is looking for when he finally notes that slavery is a bad thing mm’kay!
The bible gives instructions on how to treat your slaves. To FMM this is a positive thing, as those slaves would have been treated worse without those instructions. Yet he can’t address the fact that Jesus never spoke directly against slavery, but somehow did anyway but indirectly.
not sure what you mean by a biblical slave but all slavery is bad.
Where do you get that Idea. Do you think advocating precise clear thinking instead of equivocation is advocating slavery?
That explains a lot
Do you know what metaphor is?
Do you think that being written by different humans in inconsistent with divine authorship? That explains a lot
Words form God would not have changed all that.Because no one obeys God’s words of their own volition.
Apparently you missed that answer as well.
Knowledge acquisition would be a lot easier for you if you were interested in answers to your questions.
Peace
And they will be freed when Christians and others who are inspired by the Bible win the day over those who would ignore what it says. That is after all what Christianity is all about.
What are you taking about?
You do know Jesus is the author of the Bible don’t you?
All the verses against slavery that I quoted were him speaking (directly).
Perhaps you missed it since you are not interested in answers. I suggest you go back and read
peace
You did: “Yep the uncleanliness stuff is more vital in the long term spiritual sense of things. Slavery is temporary and local.”
You trivialize the horror of enslaving other human beings as a “temporary and local” issue.
There is no evidence for anything resembling “spiritual slavery”. Real slavery affects real people. The fact that you care less for that suffering than for your myths proves that Weinberg was correct when he said “With or without religion, you would have good people doing good things and evil people doing evil things. But for good people to do evil things, that takes religion.”
Thanks for the condescension, but I’ll stick with objective, empirical evidence. It makes me far less likely to dismiss actual human suffering.
So some types of slavery are fine and dandy with you and your god? You’re making a great argument against your beliefs.
keiths:
fifth,
How will you answer if God asks you that question?
Is it? I presume you are a christian. Therefore you are working to overturn modern day slavery.
Fifth, what have you personally done today with regard to overturning slavery?
Or is it someone else’s job?
The bible talks about how to treat slaves. They are ‘biblical slaves’, if you will.
Describe a day in their life!
Oh? It’s funny how you quote Luke when I can do the same and it’s much clearer and to the point
Seems quite clear to me. And there are others as well. But no doubt you’ll have a good set of excuses as to why this is actually a good thing and it’s really a metaphor.
Yeah, seems like a not-oppressive at all relationship to me. It’s amazing what religion does to you. White is black and black is white.
Why don’t you just come out and endorse slavery, with beatings and murder, the way the bible does? Why do you try to impose your own fallible morals on God’s laws and commandments? God wants you to take slaves, real genuine slaves, to beat or kill them when they disobey you and who the hell are you to disagree anyway?
I refer the reader to the discussion here which goes into the details. We’ll see who’s left standing at the end of the exchange:
I pointed out here:
We’ll my paper trade is exceeding expectations. Woohoo. Current price of LOZ6 C8000 at 12:45 7/7/16 is 0.05 (the average of the bid of 0.04 and ask of 0.06) which implies the standard contract is now trading at 50 dollars (.05 x 1000). Which means my short sale has a net profit of 35 dollar (85-50 dollars).
Given the collateral I set aside was 850 dollars, this is a return on equity of 35/850 = 4.1% in only 9 days which would be an annualized rate of return of over 400%. Woohoo. I’m closing out the trade and breaking out the champagne (actually I like ginger ale better).
Experiment agrees with Thorp’s theories. Science works.
Learn about the scientific basis of the trade here:
https://en.wikipedia.org/wiki/Volatility_arbitrage
stcordova,
Hate to be critical, but that’s not a very scientific approach. You need to do a test for a population of trades and measure against a control (or random selection).
I should note when I pulled the trigger on my paper trade on June 29:
The price of crude was 51.82 on 6/29, as of right now it is 45.09 at 1pm EST 7/7/16, a horrific drop. The paper trade I put forward was counting on the price of crude Oil not exceeding 80 by November 16, 2016. That’s a rather easy call (pun intended).
If crude oil dipped, like it did, it’s easy money.
If on the other hand it started to rise, one would have to wait it out and see if crude oil closed about 80 on November 16, 2016. Volatility arbitrage theory said it was a favorable wager even if crude oil rose, just as long as it wasn’t over 80 on November 16, 2016.
The trick of course is having contingencies when things start to go really bad as they expected to on occasion. But those contingencies are the topic of proprietary techniques which I don’t discuss publicly.
Rich,
I was only being half serious, but Volatility Arbitrage theory is a real theory that is applied in hedge funds of today. I learned this stuff from a Morgan Stanley executive whom I met in my blackjack circles. It’s no coincidence Blackjack players sometimes go on to be investment managers.
To actually be able to do this in away that is consistently within some safety parameter ( say a 5% failure rate), is not easy.
I’m glad you’re being critical because this is an interesting topic of conversation and there is a cynical twist to all this which I will describe below.
The following was done by an S&P 500 researcher of the success of volatility arbitrage theory. It worked till the crash of 2008. No doubt, the success of derivative trading for 18 years prior to 2008 contributed to the magnitude of the crash when the Black Swan finally appeared.
You can look at the methodical study right here by Keith Loggie of S&P.
http://www.markit.com/news/volatility-arbitrage.pdf
Ok, so what does this mean, and I’m sorry I have to put a cynical twist on all this but it will make sense if one sees it through the lens of cynicism.
Loggie showed theory worked well for 18 years. That is, one counts on the market operating within two standard deviations 95% of the time. So that means 19 out of 20 years, you’ll be making money, and then you have that one awful 1 year you get wiped out.
In terms of hedge fund management, you manage investors money for 19 of 20 years and they are getting spectacular returns while you (the hedge fund manager) collect a nice management fee along the way. You are making money off of other people’s money, not your own. Then when the fund blows up, as it is expected to, they lose their money, but you keep yours since your money was the management fee and hopefully you were smart enough not to risk your money but theirs.
Personally I don’t think hedge fund managers are that sociopathic, as it is easy for a hedge fund manager to believe he’s found the holy grail. After all, for 18/19 years he had an unparalleled success rate, and if he was conservative, he could be lucky and have a 50 years of steady success until the day the Black Swan shows up. In fact I think most hedge fund managers who are successful want to believe it’s because of their genius rather than random luck, and that they are doing a real service to their clients.
I think personally there are some open ended questions, but I think the market isn’t totally random and is exploitable.
The bottom line question is, when is it reasonable to play Russian roulette with the market? One can get long steady returns for a long time, until the revolver has a loaded chamber when you pull the trigger.
I heard that after 2008, economic statisticians were shocked by the failure of the investment strategies based on things like the Black-Scholes model. Supposedly they looked into this and concluded that the model was fine, the problem was that the model had been trained, its parameters had been chosen, using a stretch of past years that did not include any large economy-wide downturns.
Incidentally, this sort of theory is also used by evolutionary biologists. In particular, to predict the outcome when fitnesses vary through time. The basic theory started with Haldane and Jayakar in 1963, and was refined by John Gillespie and others in the 1970s. For example suppose that (in a haploid organism) if in wet years genotype A has fitness 1.05 compared to fitness of a 1.0, while in dry years the fitnesses are 0.9 : 1. If 68% of years are wet the average fitness of A relative to a is 1.002. So in the long run A will win out, right?
Wrong. The theory shows that in this case in a large population a will win out. And this will happen even if the wet and dry years are not independently occurring each year.
The theory does usually assume that all the organism’s assets are bet every year. But there are case where one wants not to assume that, for example when a plant’s seeds enter a “seed bank” in the soil and only (say) 10% of them germinate every year.
Some random facts: The Black-Scholes model won the Nobel Prizes for Myron Scholes, but since his co-author Fischer Black had died an untimely death from cancer, and since Nobel Prize aren’t awarded posthumously, the Nobel Prize went to Myron Scholes and Robert Merton (who independently derived the equation using something called Ito’s calculus).
Then in 1998, one year after wining the Nobel Prize, both Scholes and Merton went bankrupt when they were dumb enough to risk their own money on their own economic theory, when wisdom should have told them to bet other people’s money and collect the management fees (this is actually the casino model of business if you think of it).
https://en.wikipedia.org/wiki/Long-Term_Capital_Management
Here is the story:
Below is the picture of what happened. It accords with Black Swan theory whereby in a small unrepresentative sample, a theory looks impressive, until it explodes. This is exactly Richard Hughes complaint which I sympathize with, with some qualification.
Scholes himself thought the hedge fund was stepping on the gas pedal to hard and spinning out of control. They could have reached their destination, but just had to be willing to get there more slowly. Scholes was overruled by the other partners, and the whole ship eventually sunk.
I think there is money to be made in the market, but some caution is in order and some skepticism of idealized theories (which are mathematically tractable, but formally not reality) should always be held.
As an addendum to Black-Scholes, even though Sholes when broke, the other guy, Black died quite wealthy. To the best of my knowledge this was because Black worked for Goldman-Sach’s which to large extent bets everyone’s money, and tries to avoid betting their own. Black was promoted to the coveted position of Goldman-Sach’s partner.
He refined his theories (which he even acknowledge were inaccurate) and that helped make money for Goldman Sachs. Black with the help of Emmanuel Derman (a physicist) had to use Feynmann-Kack solutions to differential equations which, from my understanding, some population genetcists like Durrett and Schmidt had to employ to solve some of their population genetics problems.
That’s the Feynman-Kac formula.
It expresses the connection between expectation of a functional of a Brownian Motion process and a differential equation.
It isn’t just “some population geneticists”. The connection was developed by Andrei Kolmogorov in about 1930. In the late 1930s Sewall Wright realized that the equilibrium distributions of gene frequencies in population genetics, which he had computed by matching the first four moments of the stochastic process of genetic drift and other evolutionary forces, could also be obtained more neatly using Kolmogorov’s “foreward equation”. This went on, in the hands of Motoo Kimura, William Feller, Geoff Watterson and others to become the standard machinery of theoretical population genetics. (Kolmogorov himself was interested in the genetic applications but had to drop that work when Lysenko banned genetics in the Soviet Union).
Lysenkoism seems to be back, in the form of epigenetics.
I just looked it up in your book. Whoa. Thanks. I presume this is related to
Fokker-Planck:
https://en.wikipedia.org/wiki/Fokker%E2%80%93Planck_equation
Except to get the Kolmogorov forward equation, one has to constrain the left-hand side of the Fokker-Plank equation to equal to zero to get the equation in your book on page 325. Am I off base?
The problem that Black and Derman tried to solve was what happens when there is a market disaster, how does it affect derivative (option) prices. I suppose a market crash is like an intrusion or migration to a once stable population.
I couldn’t understand any of Derman and Black’s math, your explanation is more accessible (relatively speaking).
What does “Because no one obeys God’s words of their own volition” mean?
newton,
As a Calvinist, fifth accepts the doctrine of total depravity.
And of course fifth’s argument is bogus:
OMagain:
fifth:
If people couldn’t obey an injunction against slavery “of their own volition”, then they couldn’t obey the endless rules and regulations of the Old Testament of their own volition either.
So when God filled an entire chapter of Leviticus with instructions on dealing with “discharges causing uncleanness”, he was apparently just yammering, according to fifth.
Or if fifth agrees that God helped the Israelites to obey the discharge commandments, then an obvious question arises: Why couldn’t he help them to obey an injunction against slavery?
As usual, fifth hasn’t thought things through.
Here is an improved version of the paper that is in PDF format which will hopefully negate the virus warning problem Keiths mentioned regarding his McAfee virus scanner:
http://www.creationevolutionuniversity.org/public_blogs/skepticalzone/paper31.pdf
Time for another trade. This one is the Russian Roulette trade on a leptokurtic distribution.
Here is the trade:
Of course there is that 0.4% or higher chance you’ll get your head blown off. To quote Clint Eastwood, “Do you feel lucky, punk?”
If you make this money on this trade you can send a 10 dollar donation to the Discovery Institute or the Creation Research Society on my behalf in thanks for the free trading idea I just provided. 🙂
NOTES:
http://www.investopedia.com/terms/l/leptokurtic.asp
http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html
Dr. Michael Burry at the UCLA Economics School Commencement. Amazing speech, hints of anti-left wingery and collectivism. He was harassed by the government for telling the truth. Who knows the culprit behind the harassment.
From Wiki:
Here is his speech:
Who should win the Nobel Prize in Economics? How about all those hedge fund managers who bet on failing leftist polluted economies and profited like Mike.
This was Dr. Burry being portrayed in movie The Big Short during his darkest hour:
https://www.youtube.com/watch?v=pLLgNi5UmB0
Talk about sticking to your guns through adversity.
https://panampost.com/jose-nino/2015/04/22/40-years-later-milton-friedmans-legacy-in-chile/
Left-wing critics will say Chile is a disaster. Oh really? Compared to Communist Venezuela, I’d say Chile is paradise!
Chile’s economy. Note the dip reflecting the Communist government.
Contrast Chile to the Commie “Utopia” of Venezuela praised by the leftists in the USA:
On October 13, 2017 I wrote:
Congratulations to anyone who made this trade and netted 17,400 dollars. Oil didn’t go above 58 since I made that comment on 10/13/17, and it closed on expiration Wednesday 11/15/17 well below 63 two days earlier than the date I provided (Friday 11/17/17) where it closed at 56.55.
Now, let me wax philosophical for a moment. All the math models that drive the above trade are based on the limited sample size of the lifetime of the crude oil market. We build nice normal distributions, but we know that is only an approximation.
To appreciate the risks of such trading, we can assume the temperature in Siberia will go around a certain mean with a few standard deviations, we don’t expect a black swan event where the temperature in one location will be hot enough to melt rock. The model works nicely till a meteor hits. When it does, oh well, so much for our mathematical model! So it is with the derivatives market. Things cruise well until a black swan shows itself.
And on another philosophical note, is there a time to properly play Russian Roulette? Well, if it is electronic and you have a 1 in 1,000,000 chance of losing, would you play given the right payoff. There is no right or wrong answer, but so many decision in life are a trade off of reward vs. risk.
A reasonably good hedge fund manager I know personally said he’d play Russian Roulette for a 20 million dollar payoff and a risk of blowing his head off of 1 out of 1 million. I understand his reasoning. If having 20 million spares you from driving in dangerous traffic for the next 20 years going to work, then it would seem a lower risk bet to play than not playing. Again, no right or wrong answer, but that is the question each investor must make if he want to play this sort of game.
Btw, below is the photo of the Siberian meteor I was talking about and a little blurb from Wiki:
https://en.wikipedia.org/wiki/Tunguska_event
OK the crude oil market is heating up to the upside, perfect for another Russian Roulette trade. We’re going to jump right in front of a moving train and hope we don’t get run over. That’s why we get paid if we don’t die! To quote Ted Turner, “a faint heart never won a fair maiden.”
We made 17,400 dollars on the last trade so lets put that much at risk in a double or nothing trade. The West Texas Intermediate February 2018 futures contract, CLG8 is trading at at 58.78, but the present January 2018 contract spot CLF8 is at 58.82 approaching near backwardation while oil is surging upward. The historic 30-day volatility is 21.251% whereas the February 2018 call option at a strike of 75, LOG8 75000, is trading at a Implied Volatility of 28.063% bid. That’s a juice Volatility Arbitrage play.
Short sell 1259 contracts on the February Option LOG8 C7500 at a strike price of 75 for bid 0.03 and ask at 0.05, for a net of 34,798 dollars after commissions of 2.36 dollars per contract. You are hoping the contract will expire worthless on expiration day, January 17, 2018. If CLG8 doesn’t ever reach 75, you’ll be raking in a handsome profit. Bwahaha!
How many trees would one expect to find growing in a lake?
Depends where you’re looking, I guess. A similar issue is here within the investment world. Go to lakes where you can bet trees are unlikely to grow if you are betting that trees don’t grow in a particular lake.
Given the quoted price above of 58.78 for CLG8 and the historic 30-day volatility of 21.251%, my probability calculator says the probability of success on 1/17/18 is 99.87% based on a extrapolation of my 30 day sample size.
But remember the issue the Tunguska event and black swans! Caveat Emptor.
Caveat Emptor!
CONGRATULATIONS to anyone who took my suggested bet on the West Texas Intermediate Crude Oil. Options on the February 2018 CLG8 future expired yesterday January 17, 2018 at 14:30 Eastern Time, USA with a high of only 64.17 yesterday. So the bet that Oil would not close above 75 at 1/17/18 14:30 EST was a winning bet.
Yeah, baby Thorp and Black-Scholes are vindicated again.
Net gains on the last two bets:
11/17/17 17,400 dollars
1/17/18 34,798 dollars (yesterday)
Net total: 52,198 dollars
I suggest another paper trade shortly. Woohoo!
Is this group appropriate for urging people to make investments? Might that not open us to charges of being a forum for pump-and-dump schemes?
Joe:
Definitely not. Knock it off, Sal.
Heaven forbid! We must always be known as a forum for the conspiracy to inflict Darwinism upon society even though Design can answer everything (God wanted it that way) and is the only way forward to scientific discoveries in biology (wow, that was designed, and that, and that). And we do it all gratuitously, unless, of course, you’re a biology professor.
But the rest of us must always be known to inflict the evil theory of evolution because we only like evil and hate truth. Because that’s just how we are.
Glen Davidson
Alrighty, in deference to you, I won’t show off any more hypothetical applications of Black-Scholes theory which won the Nobel Prize in Economics. I wasn’t urging anyone to invest.
MIT professor Thorp (the subject of the OP) independently derived the Black Scholes equations, and he wrote Beat the Dealer and Beat the Market, and was successful at both the casinos of Vegas and the casinos of Wall Street.
Anyway, here is the Nobel Prize Winning Black Scholes equation on which the prices in the above hypothetical trades were based:
You mean you’re actually worried someone will take me seriously? 🙂