The former part of the subject of this post is so well known that no elaboration is needed. It is so true when the market has crashed and everything appears to be so cheap yet if someone is still so stuffed with cash in his pocket then he can shop whatever he likes. This is applicable to recession or in any financial market bust. So it seems cash is really almighty in the financial world, or is it?
Naturally cash is good and I like the purchasing power that comes with it. It is always a great relief when you know you have enough cash to meet all the existing or possible bills. On the other hand, knowing that you can hunt for bargains when the market crashes and the feeling of being in the upper hand in a deal negotiation is so brilliant that no one will question about the beauty of having much cash in hand.
However, any one who has a little financial knowledge also understands cash does not come without down side. Inflation erodes cash's purchasing power is just an ABC. On the other hand, cash is non-productive meaning it does not generate yield is also another common sense especially in this still relatively low interest rate environment. 10 years U.S. bonds just pays out some 2% interest only, let alone that of the humble saving account which cash usually sits in.
So apparently albeit the lovely side of cash, holding it, especially excessively, is not without costs. The erosion on the purchasing power against inflation is a very real and cruel cost. The opportunity cost of hold cash but not putting it in profit-producing investments is another one.
The above two drawbacks of sitting on cash are quite obvious, there are also other costs hidden from our sight though. To many people having plenty of cash means being wealthy. Let's imagine how happy one will be if the bank account balance shows a string of zeros following the first few digits. This wealthy feeling could easily breeds the desire of luxury indulgences if one lacks self discipline. Naturally a reward to self for the achievement of hardworking is reasonable but when it becomes a habit then it could be hazardous to wealth accumulation though.
Perhaps to those disciplined people the even bigger harm of holding a lot of cash is FOMO and the subsequent reckless investing decisions. Imagine if one closed all his/her position by last year end in the expectation on bargain hunting resulting from a further market crash but saw the market bounced significantly from the valley then how stressful he/she is now. The regret could even brings quite some sleepless nights as well. This state of mind is not only hazardous to both mental and physical health but could easily lead to improper investing decisions that could bring loss, rather than catching up the missed potential profit.
So while cash is still king but cash is also cost as well. The key is maintaining a proper proportion of cash vs assets. I used to write a post how do you classify your investments regarding the classification of assets which also explains this aspect in another perspective.
2019年3月17日 星期日
2019年3月14日 星期四
It's not a big deal, or is it?
There is never shortage of talk of the town in this small island here in Hong Kong. However, there is one recent topic which receives quite different attention among the spectrum of different walks of life. To one end of the spectrum like the housewives (no offense) or primary school students, they just react as what the subject of this post puts it. However on the other end like the legal sector or the business sector sees it as if the opening of the Pandora Box. Yes, it is the proposed bill of extradition.
The Hong Kong government claims the proposed bill (Bill) is the response to a murder case which the victim and the suspect are both Hong Kong people but happened in Taiwan so even if the suspect now came back to Hong Kong but the jurisdiction here in Hong Kong cannot act upon it. The Hong Kong government said therefore the Bill was proposed to close the loophole and to bring the justice back.
Naturally many people is upset about the situation that the suspect could escape from court trial and feel pity for the victim. The case happened in last March and the Hong Kong government reacts unprecedentedly fast to propose the Bill in just one year. Its enthusiasm in this case brought skepticism on its motive by the public, especially the opposition camp. Their doubt did not come with no ground. The Bill not only addresses this Taiwan murder case but extends the access of extradition to China. It is indeed a mutation of the national security law which has not yet been established in Hong Kong but is wanted so badly by Beijing.
This is another example of the manifestation that Beijing is tightening its grip onto Hong Kong's governing. The chief executive of HKSAR, Carrie Lam, has made it clear that the timing for the proposal of the nation security law (Law) is yet to come in light of the society currently is still so divided. Lam sees it so right and indeed the Law will definitely receive the most severe resistance even in the consultation stage, if any. However, Beijing is losing its patience and this murder case just gave rise to the chance to have it done to an even higher level in another way.
The Bill, if passed, virtually allows Beijing to fetch anybody back to China even if he/she is at the other side of the border. Despite it was claimed that the extradition must be applied under the alleged offense that is relevant in both China and Hong Kong and the Hong Kong law court can act as a screening gate. However, the screening function is merely on the inspection of due course in procedure but not to examine whether the application is made with sound and reasonable ground. Given its notorious judicial system so the fact is that Beijing can just name an offense then it can extradite someone whom is, as long as, deemed as a hostility by China. Hong Kong will no longer be a safe place for anyone whom is not welcome by China. Furthermore, the even more evil part of this Bill is that Beijing can even fetch anyone indirectly from countries where Hong Kong maintains extradition agreement.
Whether it is really not a big deal or a Pandora Box, it all depends on how one sees China's judicial system. The point is when yours and your family's well being rest on your decision, are you bold enough to bet on it? Anyway, at least there are two good things. One of them is that there will not be any more secret kidnapping to China in the dark in the future and on the other hand, the long awaited property market crash is very likely to happen cos with decades of preparation, many Hong Kong property owners are holders of foreign passport or residency now so a new round of exodus is at brink if the Bill is passed.
The Hong Kong government claims the proposed bill (Bill) is the response to a murder case which the victim and the suspect are both Hong Kong people but happened in Taiwan so even if the suspect now came back to Hong Kong but the jurisdiction here in Hong Kong cannot act upon it. The Hong Kong government said therefore the Bill was proposed to close the loophole and to bring the justice back.
Naturally many people is upset about the situation that the suspect could escape from court trial and feel pity for the victim. The case happened in last March and the Hong Kong government reacts unprecedentedly fast to propose the Bill in just one year. Its enthusiasm in this case brought skepticism on its motive by the public, especially the opposition camp. Their doubt did not come with no ground. The Bill not only addresses this Taiwan murder case but extends the access of extradition to China. It is indeed a mutation of the national security law which has not yet been established in Hong Kong but is wanted so badly by Beijing.
This is another example of the manifestation that Beijing is tightening its grip onto Hong Kong's governing. The chief executive of HKSAR, Carrie Lam, has made it clear that the timing for the proposal of the nation security law (Law) is yet to come in light of the society currently is still so divided. Lam sees it so right and indeed the Law will definitely receive the most severe resistance even in the consultation stage, if any. However, Beijing is losing its patience and this murder case just gave rise to the chance to have it done to an even higher level in another way.
The Bill, if passed, virtually allows Beijing to fetch anybody back to China even if he/she is at the other side of the border. Despite it was claimed that the extradition must be applied under the alleged offense that is relevant in both China and Hong Kong and the Hong Kong law court can act as a screening gate. However, the screening function is merely on the inspection of due course in procedure but not to examine whether the application is made with sound and reasonable ground. Given its notorious judicial system so the fact is that Beijing can just name an offense then it can extradite someone whom is, as long as, deemed as a hostility by China. Hong Kong will no longer be a safe place for anyone whom is not welcome by China. Furthermore, the even more evil part of this Bill is that Beijing can even fetch anyone indirectly from countries where Hong Kong maintains extradition agreement.
Whether it is really not a big deal or a Pandora Box, it all depends on how one sees China's judicial system. The point is when yours and your family's well being rest on your decision, are you bold enough to bet on it? Anyway, at least there are two good things. One of them is that there will not be any more secret kidnapping to China in the dark in the future and on the other hand, the long awaited property market crash is very likely to happen cos with decades of preparation, many Hong Kong property owners are holders of foreign passport or residency now so a new round of exodus is at brink if the Bill is passed.
2019年2月24日 星期日
Trade war? A trick!
I have posted two articles about this topic and my view was very clear since the first post that the trade war between the U.S. and China was not really about the trade but the wrestling on the status of No. 1 nation. Not long ago Trump said he may postpone the deadline on the elevation of the tariff on the China imports because the talks between the delegations of the two countries went well. Trump once stood very strongly that no extension would be given but his latest move brought me an extra perspective on this issue.
Allow me to detour the subject for a while. I like movie watching and nowadays movies market is dominated by Hollywood productions which heroic movies is definitely one of the blockbusters. In this category of movie, the story is usually about an imminent crisis or catastrophe which the U.S., if not the whole world, was facing and it could cost tens of thousands or even millions of life should it finally happen. The situation was pressing but seemed no way out and the clock was ticking. Then there came the hero who solved the problem and saved the world. This is the typical formula of Hollywood heroic movies.
I guess Trump is also a heroic movies fan but he not only likes watching but is also very much interested in screenwriting. He knows the Americans is fond of hero so he wrote a movie, the Trade War, in which he is the male lead. In Hollywood movies the U.S. presidents all were portrait as patriots who took the role to protect the nation and the people as their unshirkable duty. In his movie Trump created a crisis out from nothing and then fix it in order to win the applause. It is true there is a huge trade imbalance with China but as long as China keeps using that printed matter which is called Dollar, that they got from the trade surplus, to buy the U.S. government bonds. The trade deficit is only a matter of accounting entry but the fact is that China is financing the U.S. government in the exchange for the room of development. China leaders and all previous U.S. presidents knew what it is all about.
However Trump highlighted the trade imbalance and raised it up to a level that almost became a national crisis. He then directs the play of trade talk and naturally the ending of the story is that he wins the victory and the country is saved. What a national hero! Looking at the way he manipulates the progress of the trade talk I truly believe he is directing his own best movie of the year. Naturally Trump's effort in producing this movie is not just out of fun but for the next term of presidency. He is passionate to serve the country? I can't tell cos I don't know him but he can probably direct a few more "movies" in another four years if he wins the election again. On the other hand just imagine the market sentiment rocks like roller coasters along with the good and bad news that came with the trade talk and it means the market will see many more ups and downs to come if Trump managed to grab another term of presidency, isn't it a great chance for huge profit if there is a genius who can time the market right?
Allow me to detour the subject for a while. I like movie watching and nowadays movies market is dominated by Hollywood productions which heroic movies is definitely one of the blockbusters. In this category of movie, the story is usually about an imminent crisis or catastrophe which the U.S., if not the whole world, was facing and it could cost tens of thousands or even millions of life should it finally happen. The situation was pressing but seemed no way out and the clock was ticking. Then there came the hero who solved the problem and saved the world. This is the typical formula of Hollywood heroic movies.
I guess Trump is also a heroic movies fan but he not only likes watching but is also very much interested in screenwriting. He knows the Americans is fond of hero so he wrote a movie, the Trade War, in which he is the male lead. In Hollywood movies the U.S. presidents all were portrait as patriots who took the role to protect the nation and the people as their unshirkable duty. In his movie Trump created a crisis out from nothing and then fix it in order to win the applause. It is true there is a huge trade imbalance with China but as long as China keeps using that printed matter which is called Dollar, that they got from the trade surplus, to buy the U.S. government bonds. The trade deficit is only a matter of accounting entry but the fact is that China is financing the U.S. government in the exchange for the room of development. China leaders and all previous U.S. presidents knew what it is all about.
However Trump highlighted the trade imbalance and raised it up to a level that almost became a national crisis. He then directs the play of trade talk and naturally the ending of the story is that he wins the victory and the country is saved. What a national hero! Looking at the way he manipulates the progress of the trade talk I truly believe he is directing his own best movie of the year. Naturally Trump's effort in producing this movie is not just out of fun but for the next term of presidency. He is passionate to serve the country? I can't tell cos I don't know him but he can probably direct a few more "movies" in another four years if he wins the election again. On the other hand just imagine the market sentiment rocks like roller coasters along with the good and bad news that came with the trade talk and it means the market will see many more ups and downs to come if Trump managed to grab another term of presidency, isn't it a great chance for huge profit if there is a genius who can time the market right?
2019年2月18日 星期一
China-isation
It's been quite a while I did not write any post because I was not in a good mood in writing in the past month. Things happened in the recent months were rather depressing. Despite the weather in the past Lunar New Year was exceptional good but the air pressure, I meant political, here in Hong Kong has never been so high.
Among the several major issues casting a very dark shadow on Hong Kong's future, the Shatin Central Link construction scandal is definitely one of them. Apart from the heavily delay and the huge over-budget, the scandal really destroyed the reputation on Hong Kong's integrity which was restored through decades of effort by 2 to 3 generations after the establishment of ICAC in 1974 when prior to its inception, corruption in both public and private sector was a norm. However, unfortunately after the returning to China, moral in this aspect started to erode quickly. In fact Timothy Tong, the ex chef of ICAC, himself was blamed on his misconduct in 2010 as being a civil servant and just narrowly escaped from prosecution. Since then the confidence on ICAC from the general public was largely undermined and perhaps that was the very first case which was brought to light that China-isation on Hong Kong is really happening.
Now back to this Shatin Central Link scandal, despite the culprit is Leighton but in fact the black sheep is MTR, an once renowned corporation not only in its technical know-how but also in its corporate governance for decades. Gone were the the days now that even an once well managed corporation ran into such a management crisis or strictly speaking, a fall on management ethic. It is still unknown who in the company should be held responsible yet and most of all, the root cause of the scandal and the likelihood of any criminal act element. For an once starred corporation to melt down so quickly there must be a change on the company culture which is actually the manifestation of the values and mindset of the top management. With the ever escalating integration with China, values and mindset of Hong Kong business leaders are inevitably compromised. Rigorism and professionalism are something dispensable in nations of rule by will, sadly also a sign of Hong Kong's China-isation.
Another similar case on construction scandal is the HK-Zhuahai-Macau bridge. Quite a number of the quality assurance forms were submitted by the contractor only after months of the opening of the bridge. These forms should have been submitted after the completion of a certain construction job and prior to the commencement of the next step to ensure the quality standard was well met. These forms are for quality assurance mechanism and no further work should has been commenced prior to the inspection and approval on these forms yet the fact is that things went through without them. However, the secretary of the Transport and Housing who should be the watchdog of the infrastructure yet just trying to lighten the case as a late submission only and tried to comfort the general public the quality and safety of the construction were not compromised. An originally policing role now turned into an escort of the malpractice. The reason? The contractor is a China company and most of all, this was the result on the expedition on construction completion meeting the wish of Beijing.
Deng Xiao Ping laid down the arrangement of "one country, two systems" for the returning of HK and set the policy of "no change for 50 years". Naturally no one will believe in naive that changes will happen only after 2047 but now it is just 20+ years after the returning yet Hong Kong is very much alike China now in one way or another. Hong Kong's value to China lies in its difference from China. I think the top boss in Beijing also wants to make HK different from China so that China can capitalize on this difference as a platform to deal with the western world. However, what the top boss cannot stop is the homogenization of HK towards China when people in HK, especially in businesses or government, has more and more interaction with the mainlanders when China economy is in much larger scale and much more influential than is the HK's. Leaders in both private and public sectors in Hong Kong are just too vulnerable when facing the tremendous financial benefits for the former and the pleasing culture towards the higher ranking officials for the latter. China-isation is bound to happen.
China influences are no doubt getting stronger and stronger in Hong Kong. Like it or not, the statement "one country, two systems" has become just a slogan more than ever. The above three cases have a common point, ie., China element. Tong hung around with Chinese officials closely. MTR has a lot of projects in China while the Bridge contractor is a China company. Shouldn't those people advocate and promote integration with China stop and re-think? There is one Chinese wisdom of words, 近朱者赤，近墨者黑 （One will be homogenized with people whom the one hangs around, be they good or bad.). When one day Hong Kong completely integrates with China, is that what Beijing wants and to their best benefits?
Among the several major issues casting a very dark shadow on Hong Kong's future, the Shatin Central Link construction scandal is definitely one of them. Apart from the heavily delay and the huge over-budget, the scandal really destroyed the reputation on Hong Kong's integrity which was restored through decades of effort by 2 to 3 generations after the establishment of ICAC in 1974 when prior to its inception, corruption in both public and private sector was a norm. However, unfortunately after the returning to China, moral in this aspect started to erode quickly. In fact Timothy Tong, the ex chef of ICAC, himself was blamed on his misconduct in 2010 as being a civil servant and just narrowly escaped from prosecution. Since then the confidence on ICAC from the general public was largely undermined and perhaps that was the very first case which was brought to light that China-isation on Hong Kong is really happening.
Now back to this Shatin Central Link scandal, despite the culprit is Leighton but in fact the black sheep is MTR, an once renowned corporation not only in its technical know-how but also in its corporate governance for decades. Gone were the the days now that even an once well managed corporation ran into such a management crisis or strictly speaking, a fall on management ethic. It is still unknown who in the company should be held responsible yet and most of all, the root cause of the scandal and the likelihood of any criminal act element. For an once starred corporation to melt down so quickly there must be a change on the company culture which is actually the manifestation of the values and mindset of the top management. With the ever escalating integration with China, values and mindset of Hong Kong business leaders are inevitably compromised. Rigorism and professionalism are something dispensable in nations of rule by will, sadly also a sign of Hong Kong's China-isation.
Another similar case on construction scandal is the HK-Zhuahai-Macau bridge. Quite a number of the quality assurance forms were submitted by the contractor only after months of the opening of the bridge. These forms should have been submitted after the completion of a certain construction job and prior to the commencement of the next step to ensure the quality standard was well met. These forms are for quality assurance mechanism and no further work should has been commenced prior to the inspection and approval on these forms yet the fact is that things went through without them. However, the secretary of the Transport and Housing who should be the watchdog of the infrastructure yet just trying to lighten the case as a late submission only and tried to comfort the general public the quality and safety of the construction were not compromised. An originally policing role now turned into an escort of the malpractice. The reason? The contractor is a China company and most of all, this was the result on the expedition on construction completion meeting the wish of Beijing.
Deng Xiao Ping laid down the arrangement of "one country, two systems" for the returning of HK and set the policy of "no change for 50 years". Naturally no one will believe in naive that changes will happen only after 2047 but now it is just 20+ years after the returning yet Hong Kong is very much alike China now in one way or another. Hong Kong's value to China lies in its difference from China. I think the top boss in Beijing also wants to make HK different from China so that China can capitalize on this difference as a platform to deal with the western world. However, what the top boss cannot stop is the homogenization of HK towards China when people in HK, especially in businesses or government, has more and more interaction with the mainlanders when China economy is in much larger scale and much more influential than is the HK's. Leaders in both private and public sectors in Hong Kong are just too vulnerable when facing the tremendous financial benefits for the former and the pleasing culture towards the higher ranking officials for the latter. China-isation is bound to happen.
China influences are no doubt getting stronger and stronger in Hong Kong. Like it or not, the statement "one country, two systems" has become just a slogan more than ever. The above three cases have a common point, ie., China element. Tong hung around with Chinese officials closely. MTR has a lot of projects in China while the Bridge contractor is a China company. Shouldn't those people advocate and promote integration with China stop and re-think? There is one Chinese wisdom of words, 近朱者赤，近墨者黑 （One will be homogenized with people whom the one hangs around, be they good or bad.). When one day Hong Kong completely integrates with China, is that what Beijing wants and to their best benefits?
2019年1月7日 星期一
Danger and fear
I used to watch "After Earth" which is a science fiction movie casting with Will Smith. https://www.youtube.com/watch?v=CZIt20emgLY. The story is not very brilliant indeed but there is one line that inspires me much. It says "Danger is very real but fear is an option".
The reason why this line stands out so much that I remember it so well is that because despite it was just a teaching from Will, a father, to his son in the movie but in fact it could be a motto to everyone. It even sounds a bit of philosophical if you dig a little deeper in it.
Danger is something life-threatening and its existence is objective so it is real. It could be something like natural disasters or like being in a sinking ship in the middle of ocean. Fear is an instinct when one comes across danger. When facing these dangers one can choose to fear or not to though. Not many people in real life come across many cases encountering life-threatening scenario. Yet fear did strike though and it can arise out from nothing real just like any kind of phobia which is just a mental disorder. This is particular true for money gamers who constantly face greed and fear, eg., FOMO (fear of missing out) and fear on potential loss. Greed leads to FOMO while once engaged in a position, fear on potential loss will always set in.
As facing fear is the life of almost all money gamers have to live with so distinguishing real danger from an invalid fear becomes imperative as fear is an extreme anxiety which is harmful to one's health, mental and/or physical. Having said so it is easier said than done though for those dangers and fear in the financial market setting. Unlike in the real life situation dangers mean the loss of life or at least injury which are tangible, however dangers in the financial market is more vague in definition because the loss could range between the vanish of just a small portion of own wealth to total loss or even bankruptcy. These dangers trigger fear. Fear does not necessarily related to danger though. Very often fear just arises out from our misjudgment on the situation. Therefore the fear arising from the different scenarios deserve a careful scrutiny inside them.
While fear per se is a mechanism preventing us from contracting danger but fear also limiting us from venturing into risks which could lead to potential profit. The first part of the line in the movie "Danger is very real" is the key point. Danger is something that can really bring damage so we must be respectful to dangers. Yet the latter part of the line "fear is an option" is even more meaningful. After knowing we are facing a danger and feeling the fear associates with it, we can make the choice, to navigate among the fear or be led by it. For sure this must be an informed decision and naturally it must be made only after evaluating how likely the danger will come true and the extent of the damage. On the other hand, if danger does not happen at the end of the day then what the reward is. This is just about the concept of probability and odds in my earlier post.
Warren Buffett advocates to buy in when the general public is in fear. Every value investor has heard about it and promised to practice it. Yet when the market is crashing and seems to go on, fear from self sets in, it is not easy to do so. This is the exact time to review this line "danger is very real but fear is an option".
Good luck in trading!
The reason why this line stands out so much that I remember it so well is that because despite it was just a teaching from Will, a father, to his son in the movie but in fact it could be a motto to everyone. It even sounds a bit of philosophical if you dig a little deeper in it.
Danger is something life-threatening and its existence is objective so it is real. It could be something like natural disasters or like being in a sinking ship in the middle of ocean. Fear is an instinct when one comes across danger. When facing these dangers one can choose to fear or not to though. Not many people in real life come across many cases encountering life-threatening scenario. Yet fear did strike though and it can arise out from nothing real just like any kind of phobia which is just a mental disorder. This is particular true for money gamers who constantly face greed and fear, eg., FOMO (fear of missing out) and fear on potential loss. Greed leads to FOMO while once engaged in a position, fear on potential loss will always set in.
As facing fear is the life of almost all money gamers have to live with so distinguishing real danger from an invalid fear becomes imperative as fear is an extreme anxiety which is harmful to one's health, mental and/or physical. Having said so it is easier said than done though for those dangers and fear in the financial market setting. Unlike in the real life situation dangers mean the loss of life or at least injury which are tangible, however dangers in the financial market is more vague in definition because the loss could range between the vanish of just a small portion of own wealth to total loss or even bankruptcy. These dangers trigger fear. Fear does not necessarily related to danger though. Very often fear just arises out from our misjudgment on the situation. Therefore the fear arising from the different scenarios deserve a careful scrutiny inside them.
While fear per se is a mechanism preventing us from contracting danger but fear also limiting us from venturing into risks which could lead to potential profit. The first part of the line in the movie "Danger is very real" is the key point. Danger is something that can really bring damage so we must be respectful to dangers. Yet the latter part of the line "fear is an option" is even more meaningful. After knowing we are facing a danger and feeling the fear associates with it, we can make the choice, to navigate among the fear or be led by it. For sure this must be an informed decision and naturally it must be made only after evaluating how likely the danger will come true and the extent of the damage. On the other hand, if danger does not happen at the end of the day then what the reward is. This is just about the concept of probability and odds in my earlier post.
Warren Buffett advocates to buy in when the general public is in fear. Every value investor has heard about it and promised to practice it. Yet when the market is crashing and seems to go on, fear from self sets in, it is not easy to do so. This is the exact time to review this line "danger is very real but fear is an option".
Good luck in trading!
2018年12月19日 星期三
Index option trading with statistic(5)
I did not intend to make this topic as a series despite I have made four posts about it already. However, since I have also written another related post regarding probability on trading and it is closely related to what I term it probability trading so it is good to supplement some more info about this idea in this post.
Every short side option trader knows that option trading boils down into three key estimations prior to position building,
1. Direction of index movement, ie., above or below the rollover point at the settlement day
2. Range of volatility and the peak and valley of the month
3. settlement point
Naturally there are also concern on position size, strike picking, time of position building and long or short which are more on the risk management and trade strategy which varies from one person to another.
In my first post I mentioned that as long as one believes the index movement is the manifestation of the combat between bearish and bullish master players so it follows a structured pattern which history will repeat in somewhat similarity. Therefore probability from the past statistic could be a good reference for the inference of the future. This is the basis of my idea of probability trading, ie., decision based on the likelihood on what things will/will not happen.
The application of probability on the above mentioned three key aspects does not share equal weighing. In fact probability shows little implication on the first aspect, ie., direction of movement, because whether the spot month index will end up higher or lower than the rollover point is indeed random and is affected by the key events happen in that month which probability data fails to predict. Having said so, statistic does reveal that for HSI when the previous month has experienced a more than 10% fall then there is a 0.78 probability that the spot month will see a higher than rollover point settlement.
Probability does it job best on the second aspect, ie., the prediction on the monthly volatility and peak/valley. Statistic shows that 0.87 probability monthly volatility is below 3000 points and 0.73 probability below 2000 points respectively in the past 18 years. Naturally how accurate the probability data for a particular month can be depends on the design of the database which I mentioned in my first post. A sophisticated database which incorporates well designed sorting parameters does reveal a reliable probability of the volatility of a month for a given pattern.
Although probability data cannot predict the exact settlement point for a particular month but just like what it does for the volatility, it can show the probability of the how many points deviation from the rollover point. For example, it is 0.05 probability that any given month the settlement is more than 1800 points above the rollover point.
In my post "is a trade worthwhile?", I raised the concept of odds and probability for the basis of whether a trade should be made at all. A well structured database can provide probability for the volatility and settlement point. The information of odds for index option trading for short side trader is even easier. Basically the profit for a short position is known when it is built. The potential loss depends on how the hedging is or what strike the protective long is put. The odds is just a simple maths.
As Charlie Munger puts it, value investing is all about looking for bets with 0.5 probability but with 3:1 odds. Through the use of database and the application of probability, index option trading can be more secured. The risk (probability of settlement beyond the strike of position) is foreseen and how much the profit is also known right at the time of position building. No more torture from the fear and greed. This is the essence of my idea of probability trading.
Good luck in trading!
Every short side option trader knows that option trading boils down into three key estimations prior to position building,
1. Direction of index movement, ie., above or below the rollover point at the settlement day
2. Range of volatility and the peak and valley of the month
3. settlement point
Naturally there are also concern on position size, strike picking, time of position building and long or short which are more on the risk management and trade strategy which varies from one person to another.
In my first post I mentioned that as long as one believes the index movement is the manifestation of the combat between bearish and bullish master players so it follows a structured pattern which history will repeat in somewhat similarity. Therefore probability from the past statistic could be a good reference for the inference of the future. This is the basis of my idea of probability trading, ie., decision based on the likelihood on what things will/will not happen.
The application of probability on the above mentioned three key aspects does not share equal weighing. In fact probability shows little implication on the first aspect, ie., direction of movement, because whether the spot month index will end up higher or lower than the rollover point is indeed random and is affected by the key events happen in that month which probability data fails to predict. Having said so, statistic does reveal that for HSI when the previous month has experienced a more than 10% fall then there is a 0.78 probability that the spot month will see a higher than rollover point settlement.
Probability does it job best on the second aspect, ie., the prediction on the monthly volatility and peak/valley. Statistic shows that 0.87 probability monthly volatility is below 3000 points and 0.73 probability below 2000 points respectively in the past 18 years. Naturally how accurate the probability data for a particular month can be depends on the design of the database which I mentioned in my first post. A sophisticated database which incorporates well designed sorting parameters does reveal a reliable probability of the volatility of a month for a given pattern.
Although probability data cannot predict the exact settlement point for a particular month but just like what it does for the volatility, it can show the probability of the how many points deviation from the rollover point. For example, it is 0.05 probability that any given month the settlement is more than 1800 points above the rollover point.
In my post "is a trade worthwhile?", I raised the concept of odds and probability for the basis of whether a trade should be made at all. A well structured database can provide probability for the volatility and settlement point. The information of odds for index option trading for short side trader is even easier. Basically the profit for a short position is known when it is built. The potential loss depends on how the hedging is or what strike the protective long is put. The odds is just a simple maths.
As Charlie Munger puts it, value investing is all about looking for bets with 0.5 probability but with 3:1 odds. Through the use of database and the application of probability, index option trading can be more secured. The risk (probability of settlement beyond the strike of position) is foreseen and how much the profit is also known right at the time of position building. No more torture from the fear and greed. This is the essence of my idea of probability trading.
Good luck in trading!
2018年12月9日 星期日
Artificial Intelligence, a destructive goodie(2)
In my earlier post with the same subject I raised the concern on AI from the perspective of common folks. Not long ago I came across an article from a knowledgeable scholar on the topic on whether AI and robots can overtake human being. Contrary to my view, he is quite optimistic that AI will not surpass human despite of the former's ever expanding capability. His argument is that AI is silicon based while life on earth, in all forms including human's, is carbon based. While carbon based life has evolved into a stage that it has so many complexity of senses and feelings but AI even cannot perceive the feeling of hurt, so AI does not has the mental capacity like sensation, emotions and imagination that are needed to develop into the higher form of intelligence just like what human being has, let alone the development of self-consciousness that could turn out to be rivalry against human being.
In his view, even if silicon based AI can be evolved into life but it will be of no match with the carbon based life. His argument is that the existence of the millions species of carbon based life on earth now is the evidence that it is the best manifestation of natural selection should there ever had been any life-forming competition between the two chemical elements. That scholar is one of the respected persons in my life but I can't agree with him on this aspect.
Carbon based life is no doubt flourishing on this planet now but if we view the history on earth and also that of the universe, a million or even billion years is not more than just a blink of an eye. Dinosaur has once ruled the planet for 180 millions year but it is human being which is in control now. Considering the shear size of dinosaur, they would not think, if they ever did, this tiny primate can make such an achievement. Existing dominance might not and most probably cannot persist forever when the time line is long enough.
AI is still in its very infancy. Although we have seen much progress on its development but it is just like an embryo comparing to a fully grown adult if we put it to the metaphor of silicon based life to carbon based life. I am not sure whether AI will finally develop to has senses resemble to that of human's but I am pretty sure when AI's self learning runs long enough it will eventually has the awareness of self-consciousness. It is just like the process that a baby's brain will go through.
When AI is aware of self and external then it will unavoidably start thinking of the well-being of self. Silicon based life is then at the brink of emergence, cogito ergo sum (I think, therefore I am), if this philosophy applies. When there is life in a bacteria which does not think at all then we just cannot deny it is not life when silicon based AI can really think but not just playing algorithm. Naturally this form of life is quite different from that of the counterpart especially the way of reproduction.
I would say the relationship between the carbon-based life and the coming silicon based life is that the former develops a platform for the emergence of the latter. The essence of the existence of silicon based life is electricity. Without it no computer can ever run. Electricity was discovered not more than two centuries ago and it is human being ,ie carbon based life whom invented it. It is also human being who invented and nurtures AI to become a monster. Some may say AI is still under the control of human's hands but is it? Image one day Google, banking system, transport system, telecommunication system do not work simply we try to disconnect AI then what type of living will it become? Let alone AI at this stage is only in its primitive application. Can someone image how AI affects human's living 50 years or a century later? It is not difficult to think who is going to control whom.
The fact and reality are that it is a path of no return when the box of Pandora was opened. Human will rely on AI more than ever in the future. The point is that at certain point the race between carbon based life and silicon based life will become unequaled. The information processing capability of silicon based life is much much much much way stronger than its counterpart and unfortunately we are on the info/data highway which we build on our own. On the other hand, most of the human's knowledge and experiences vanish after death but AI is immortal and it learns and evolves in much faster rate than that of human's. Human replaced dinosaur to be the ruler of the world and then our civilization is replaced by that of the AI's whom dwarfs us because of the limitation on the design and structure of carbon based. It is just about evolution of history, in term of light year.
Our existence is for the preparation and to give rise to AI civilization. Human discovered electricity that flourishes us and it is just electricity undoing us.
In his view, even if silicon based AI can be evolved into life but it will be of no match with the carbon based life. His argument is that the existence of the millions species of carbon based life on earth now is the evidence that it is the best manifestation of natural selection should there ever had been any life-forming competition between the two chemical elements. That scholar is one of the respected persons in my life but I can't agree with him on this aspect.
Carbon based life is no doubt flourishing on this planet now but if we view the history on earth and also that of the universe, a million or even billion years is not more than just a blink of an eye. Dinosaur has once ruled the planet for 180 millions year but it is human being which is in control now. Considering the shear size of dinosaur, they would not think, if they ever did, this tiny primate can make such an achievement. Existing dominance might not and most probably cannot persist forever when the time line is long enough.
AI is still in its very infancy. Although we have seen much progress on its development but it is just like an embryo comparing to a fully grown adult if we put it to the metaphor of silicon based life to carbon based life. I am not sure whether AI will finally develop to has senses resemble to that of human's but I am pretty sure when AI's self learning runs long enough it will eventually has the awareness of self-consciousness. It is just like the process that a baby's brain will go through.
When AI is aware of self and external then it will unavoidably start thinking of the well-being of self. Silicon based life is then at the brink of emergence, cogito ergo sum (I think, therefore I am), if this philosophy applies. When there is life in a bacteria which does not think at all then we just cannot deny it is not life when silicon based AI can really think but not just playing algorithm. Naturally this form of life is quite different from that of the counterpart especially the way of reproduction.
I would say the relationship between the carbon-based life and the coming silicon based life is that the former develops a platform for the emergence of the latter. The essence of the existence of silicon based life is electricity. Without it no computer can ever run. Electricity was discovered not more than two centuries ago and it is human being ,ie carbon based life whom invented it. It is also human being who invented and nurtures AI to become a monster. Some may say AI is still under the control of human's hands but is it? Image one day Google, banking system, transport system, telecommunication system do not work simply we try to disconnect AI then what type of living will it become? Let alone AI at this stage is only in its primitive application. Can someone image how AI affects human's living 50 years or a century later? It is not difficult to think who is going to control whom.
The fact and reality are that it is a path of no return when the box of Pandora was opened. Human will rely on AI more than ever in the future. The point is that at certain point the race between carbon based life and silicon based life will become unequaled. The information processing capability of silicon based life is much much much much way stronger than its counterpart and unfortunately we are on the info/data highway which we build on our own. On the other hand, most of the human's knowledge and experiences vanish after death but AI is immortal and it learns and evolves in much faster rate than that of human's. Human replaced dinosaur to be the ruler of the world and then our civilization is replaced by that of the AI's whom dwarfs us because of the limitation on the design and structure of carbon based. It is just about evolution of history, in term of light year.
Our existence is for the preparation and to give rise to AI civilization. Human discovered electricity that flourishes us and it is just electricity undoing us.
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