Basic Module 3 – How Not to be a Sucker

Open a virtual trading account to practice what you pick up in each module

Introduction / Learning Outcomes:

Kevin Cook takes you through the foundation of options trading – probabilities. Understanding probabilities and volatilities gives options traders an edge. This series takes a look at generating expected returns from known probabilities. Kevin further demonstrates how this knowledge is useful in trading options. He also points out why an option trader needs to be aware of the improbable happening in the markets. “If you take away the 10 biggest returns of the S&P500 for the last 50 years, the index would be 1,000 points higher.” Specifically, you shall learn:

1. The importance of understanding how to analyze volatility.
2. Where expectations, particularly in returns, is generated.
3. Probabilities using a single die.
4. The difference between gambling and investing.
5. Why Taleb disagrees with using probabilities for investing.

Recommended Exercises:

1. Conduct die rolling exercise with bet at $3.00 a roll.
2. Conduct die rolling exercise with bet at $4.00 a roll.
3. Conduct die rolling exercise with bet at $3.50 a roll.
4. Review returns of the S&P500 for the last 10 years.
5. Identify the 10 biggest daily returns.