Index option trading with statistic (4)

In my third post regarding the same topic, I mentioned that the settlement point for this August should rest between 306 and 266 according to the 0.95 probability shown by my database. This probability comes from the statistic of the past 215 months. Despite these 215 months have seen up and down trends over the 18 years but after all there is no consideration is associated with the market trend at the prevailing moment so the settlement point indicated by the database is only for a preliminary idea on where the settlement point will probably be like at the beginning of each month.

After the first phase of August has lapsed, according to the pattern of the first phase, my database reveals that there are 0.6 probability of 1L3H or 0.2 probability of 1H3L for this month. Again these indications are from the past statistic with the same pattern in phase one of a month disregard the current market sentiment. Although past statistic indicated a higher probability of ascending pattern for this month but judging from the reality I tend to neglect this forecast but prefer the 0.2 probability of descending pattern. Of course apart from 1H3L there could be another possibility of 1H2L as well which my database did not show any probability according to the past statistic. I said so because I assume the highest point of the month has already existed on August 1 at 28773 and with the day low of today at 26871 so the chance of the index will go further than the current month high is very slim in the remaining days. As such the possibility of 2L3H is ruled out. Therefore literally there are only 2 possibilities in this month, ie., 1H3L or 1H2L.

With the assumption that the month's high has already existed so this can be used as an anchor for sorting. Meanwhile with the possibilities of 1H3L or 1H2L in mind I did sorting in my database to find the statistic on the deviation between settlement point and month's high. It revealed a 0.9 probability at 1716 points for 1H2L and at 3072 points for 1H3L. It means if it turns out to be 1H2L then the possible settlement point with 0.9 probability will not be lower than the 270 level while for the another possibility of 1H3L then it will not be lower the 257 level. These two settlement point estimations has taken into account the current market situation. Up to this moment the choice of the strike largely depends on how one assesses whether this month will end up into 1H3L or 1H2L. On the other hand so far this month's volatility is only 1902 points which seems too small considering the market tension resulting from quite a number of negative issues in this month. It seems more downward movement is yet to come so it is more likely to be 1H3L in this month.

This is the example on the elaboration of how Probability Trading could be helpful on the strike picking.