Implications on Stock & Options Trading

Efficient Market Hypothesis

Investopedia

An investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.

Recipients

This year’s prize in economic sciences in memory of Alfred Nobel was awarded to the American economists Eugene Fama, Lars Peter Hansen and Robert Shiller. All three were awarded the prize for their work on the “empirical analysis of asset prices”.

Lars Hansen

PeterShiller

Eugene Fama

Beating the Market with Stocks

Fama published his first research spelling out the "efficient markets hypothesis" in 1970, arguing that asset markets rapidly incorporate most, if not all, information about an asset into its price, making it nearly impossible for mutual funds and other investors to consistently beat the market.

Broad Market ETFs

Their work resulted in the emergence of stock index funds -- collections of assets designed to mimic the results of broader stock indexes, such as the Dow Jones Industrial. Such funds are often staples of retirement and individual investment accounts.

Alternate Strategies

To succeed, we need to use strategies that do not depend on information already priced into assets.

Option Strategies

Two strategies, independent of their underlying asset’s pricing, produces higher returns than the market.

Market Neutral pair trades

Discounted Cost Basis

Market Neutral

Counter Condor An option pair trade of two inverse, leveraged ETFs

Only relies on market movement Direction unimportant

Youtube Video Counter Condor, the Ultimate in Market Neutrality

Discounted Cost Basis

Cost Basis of Stock Equals Price of Stock Equals Trade Risk

Discounted Cost Basis with Options Equals Price of Stock Minus Credit Received Risk Equals Reduced Cost Basis

Always Smaller than Cost Basis of Stock Probability of Success

Always Greater than with Stock PowerPoint

Discounted Cost Basis

The Pairs Builder Plan

Trade Small Never Risk More than 5% of your Equity on a Trade

Trade with High Probability Youtube Video

Credit Trades and the Probability of Trading Successfully [I’m TheOptionShepherd]

Trade Frequently By Trading Small with High Probability you can afford

many trades per month Trade with Lower Risk Trade with High Return on Capital

2013 Performance Trading Only 5%/Trade Each month begins with

$100,000. A maximum of 5% [$5,000] is invested in any trade. Profits are not accumulated.

Each month’s performance is calculated from actual trades that expired by the next month’s expiration date. It shows the gain of all trades expiring by February’s expiration date.