Coin Flip

A place to talk about speculative investing ideas for the optional Variable Portfolio

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ppnewbie
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Coin Flip

Post by ppnewbie » Wed Apr 01, 2020 12:19 pm

Does anyone know a volatile force in the market that is:

As close to random as possible
I could make a big bet on that I would double money on if the bet went my way or lose half (preferably not 100 percent) if the bet went the wrong way.
The random force occurred as much as possible - preferably around once a day

I am working on strange speculative trading strategy. Thanks!
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Tortoise
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Re: Coin Flip

Post by Tortoise » Wed Apr 01, 2020 12:25 pm

If the probability of winning is 50%, you double your money if you win, and you only lose half of your money if you lose, isn't the expected return on the bet 25%? (0.5 * 0.5 + 0.5 * 2 = 1.25)

Those are damn good odds. I want in! ;)
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Mark Leavy
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Re: Coin Flip

Post by Mark Leavy » Wed Apr 01, 2020 12:35 pm

ppnewbie wrote:
Wed Apr 01, 2020 12:19 pm
Does anyone know a volatile force in the market that is:

As close to random as possible
I could make a big bet on that I would double money on if the bet went my way or lose half (preferably not 100 percent) if the bet went the wrong way.
The random force occurred as much as possible - preferably around once a day

I am working on strange speculative trading strategy. Thanks!
Oh come on. Did you just read about Shannon's Daemon?
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Mark Leavy
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Re: Coin Flip

Post by Mark Leavy » Wed Apr 01, 2020 12:44 pm

If you are going to pursue this path (which I assure you doesn't exist for the ordinary investor), you can generalize the 50/50 odds to any other odds ratio using the Kelly Criterion. Or, preferably, fractional Kelly.

A fantastic read is "Fortune's Formula".

Or read up on the early history of Shannon and Thorpe. They were some crazy fun dudes.
Thorpe still posts occasionally on one of the Quant forums that I follow.
ppnewbie
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Re: Coin Flip

Post by ppnewbie » Wed Apr 01, 2020 12:44 pm

Probably. I tried it with some code and the results were very interesting. Do you have any idea on how to try this in the real world?
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shekels
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Re: Coin Flip

Post by shekels » Wed Apr 01, 2020 12:47 pm

I know this may not Help.
But Bet on the Bankers. aka the Fed.
Because in this market it's Head I win Tails you Lose.
¯\_(ツ)_/¯
ppnewbie
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Re: Coin Flip

Post by ppnewbie » Wed Apr 01, 2020 12:57 pm

Perfect thanks. During the quarantine, I can learn about the Kelly Criterion. Thanks!
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Mark Leavy
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Re: Coin Flip

Post by Mark Leavy » Wed Apr 01, 2020 12:58 pm

Actually, I take back the "doesn't exist" comment earlier. The Shannon's demon effect is one of the explanations for the rebalancing benefit in a diversified portfolio. Random stock movement do sometimes "half and/or double". (Or some other percentage and it's inverse).

If you wanted to implement your strategy more practically... You could place a daily bet on some random stock that might go up or down and then close your position with limit orders at either (say) 90% or 111% (1.0/0.9). You would have to use Kelly to pick your bet size to avoid ruin.

Good luck!
ppnewbie
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Re: Coin Flip

Post by ppnewbie » Wed Apr 01, 2020 1:18 pm

I was thinking that the PP is essentially a form of this strategy. LTT and Stocks are fifty percent risk on (the coin flip) and cash and gold are fifty percent risk off portion of the bet that rebalances. It's just the time period is to slow. I need to go through kbg's "inspired leveraged portfolio" thread.
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Tortoise
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Re: Coin Flip

Post by Tortoise » Wed Apr 01, 2020 1:20 pm

Not to discourage learning and experimentation with using the Kelly criterion in options trading, but aren’t any expected gains already baked into the option prices (on average)? Otherwise it seems like hedge funds and big quant groups could swoop in and make a killing using very simple math.
ppnewbie
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Re: Coin Flip

Post by ppnewbie » Wed Apr 01, 2020 1:51 pm

I need a free lunch! ;)
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Smith1776
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Re: Coin Flip

Post by Smith1776 » Wed Apr 01, 2020 6:59 pm

https://www.reddit.com/r/wallstreetbets/

Peruse Wall Street Bets at your leisure, and start putting down money on options.

People s#$t on that place, but there's a occasionally some method to the madness there.
Check out the Goldsmith PP: https://www.gyroscopicinvesting.com/forum/viewtopic.php?f=1&t=9613
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