Experiments in Spread-Betting

A close relative to DNT bets are Expiry Range Bets, which is basically a bet on the close being between 2 barrier values at a certain date in the future. Obviously this resembles a European exercise whereas DNT resemble American style exercise since the options is knocked-out if the price touches the barrier anytime before expiry. I ran an idea through TradeStation which pumped out some levels based on volatility and a probability of win over the length of the data. My thought is if I can purchase my bets for less then my probability of win then I will have positive expectancy and should make money over enough bets. In other words, if the probability of price closing between X and Y is 75%, then anything less then 75/100 is a buy.

ScreenHunter_05 Nov. 02 23.36

Whenever a new model is presented its always important to test it or paper trade. I’ve put some paper trades in FX since it’s open to betting right now (watching Monday Night Football/World Series) I’ll apply to US stocks tomorrow as well. This system bets everyday, I will look at timing bets in the future. I can already anticipate correlation of wins amongst FX securities and likely serial correlation or dependence in each pair (win begets another win or trending of equity curve)

ScreenHunter_04 Nov. 02 23.30Wish me luck!


~ by largecaptrader on November 3, 2009.

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