Systematic Options Trading: Evaluating, Analyzing, and Profiting from Mispriced Option Opportunities by Izraylevich Sergey Ph.D. & Vadim Tsudikman

Author:Izraylevich, Sergey, Ph.D. & Vadim Tsudikman [Tsudikman, Vadim]
Language: eng
Format: mobi
Publisher: Pearson Education
Published: 2010-08-10T16:00:00+00:00

3.4.4 Areas Ratio

Sorting combinations by criteria values, we assume that each subsequent combination in the ordering is inferior to the previous ones in terms of profit potential or other profit-related characteristics. The effectiveness indicator based on the areas ratio is intended to test this assumption. Unlike all criteria effectiveness evaluation techniques described in the previous sections, this method is not based on regression analysis. The peculiarities of its calculation make it applicable only to criteria forecasting the expected profit of combinations. Next we describe the procedure for calculating this effectiveness indicator using the example of the short strangle/straddle strategy.

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