Leptokurtic Stock Details
Investor Expectations & Possible Trading Implications
Investors may expect a normal distribution of stock prices. Stocks go up and down seemingly randomly along with expectedly random new information. However, with a stock with a leptokurtic distribution, the investor sees typical observations closer to the mean. There is also more of a chance that a future observation will be an outlier. When plotted, the peak is taller and narrower (typical observations closer to the mean) and the tails rise up from the x-axis (more frequent outliers).
This provides information for a unique trading opportunity in stocks and stock options.
This way, these stocks will typically have smaller movements, and lower implied volatility, which reduces the cost of stock options, but still have the ability to surprise with a large standard deviation move. We believe the combination of leptokurtic and low variance gives an options trader a chance to invest less money buying an option, predict a direction of surprise, and earn profits as the stock eventually makes its big more.
At least, this is our hypothesis on how it should work. No trading strategy is fool-proof. We have felt foolish on a few of our leptokurtic options bets where the options seemed cheap, but we bet on a move in the wrong direction.
Investors may expect a normal distribution of stock prices. Stocks go up and down seemingly randomly along with expectedly random new information. However, with a stock with a leptokurtic distribution, the investor sees typical observations closer to the mean. There is also more of a chance that a future observation will be an outlier. When plotted, the peak is taller and narrower (typical observations closer to the mean) and the tails rise up from the x-axis (more frequent outliers).
This provides information for a unique trading opportunity in stocks and stock options.
This way, these stocks will typically have smaller movements, and lower implied volatility, which reduces the cost of stock options, but still have the ability to surprise with a large standard deviation move. We believe the combination of leptokurtic and low variance gives an options trader a chance to invest less money buying an option, predict a direction of surprise, and earn profits as the stock eventually makes its big more.
At least, this is our hypothesis on how it should work. No trading strategy is fool-proof. We have felt foolish on a few of our leptokurtic options bets where the options seemed cheap, but we bet on a move in the wrong direction.
This church represents a leptokurtic distribution. The peak is high and narrow, and the tails are wide and sloping.
If you made it this far, then you deserve a MEME.
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Platykurtic Stock Details
Investor Expectations & Possible Trading Implications
Investors may expect a normal distribution of stock prices. Stocks go up and down seemingly randomly along with expectedly random new information. However, with a stock with a platykurtic distribution, the investor sees typical observations grouped into a typical range, although that range may be slightly wider than a normal distribution. There is also a smaller chance that a future observation will be an outlier. When plotted, the peak is shorter and wider (typical observations spread more widely around the mean) and the tails are pushed flat into the x-axis (less frequent outliers).
This provides information for a unique trading opportunity in stocks and stock options.
These stocks will typically have a wider range of daily price changes, and potentially higher actual and implied volatility, which increases the cost of stock options. However, it will be less likely to surprise with a large standard deviation move.
We believe the combination of platykurtic and low variance gives an options trader a chance to sell options and have less chance of making a big payout from any one daily move.
At least, this is our hypothesis on how it should work. No trading strategy is fool-proof, and this discussion does not take into account fundamental performance of the company or the markets...only the distribution of 1 year of daily price changes. Do your own due diligence.
Investors may expect a normal distribution of stock prices. Stocks go up and down seemingly randomly along with expectedly random new information. However, with a stock with a platykurtic distribution, the investor sees typical observations grouped into a typical range, although that range may be slightly wider than a normal distribution. There is also a smaller chance that a future observation will be an outlier. When plotted, the peak is shorter and wider (typical observations spread more widely around the mean) and the tails are pushed flat into the x-axis (less frequent outliers).
This provides information for a unique trading opportunity in stocks and stock options.
These stocks will typically have a wider range of daily price changes, and potentially higher actual and implied volatility, which increases the cost of stock options. However, it will be less likely to surprise with a large standard deviation move.
We believe the combination of platykurtic and low variance gives an options trader a chance to sell options and have less chance of making a big payout from any one daily move.
At least, this is our hypothesis on how it should work. No trading strategy is fool-proof, and this discussion does not take into account fundamental performance of the company or the markets...only the distribution of 1 year of daily price changes. Do your own due diligence.
This mushroom represents a platykurtic distribution. The peak is low and wide, and the tails are non-existent.
If you made it this far, then you deserve a MEME.
Thank you imgflip.com