Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

2013 Nobel Prize in Economics

Consequences of the Nobel Prize in Economics Are Vitally Important to All Serious Investors, Traders, Financial Advisers & Fund Managers.

Related Books

Free with a 30 day trial from Scribd

See all
  • Be the first to comment

2013 Nobel Prize in Economics

  1. 1. Implications on Stock & Options Trading
  2. 2. Efficient Market Hypothesis Investopedia An investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.
  3. 3. Recipients This year’s prize in economic sciences in memory of Alfred Nobel was awarded to the American economists Eugene Fama, Lars Peter Hansen and Robert Shiller. All three were awarded the prize for their work on the “empirical analysis of asset prices”. Lars Hansen Eugene Fama Peter Shiller
  4. 4. Beating the Market with Stocks  Fama published his first research spelling out the "efficient markets hypothesis" in 1970, arguing that asset markets rapidly incorporate most, if not all, information about an asset into its price, making it nearly impossible for mutual funds and other investors to consistently beat the market.
  5. 5. Broad Market ETFs  Their work resulted in the emergence of stock index funds -- collections of assets designed to mimic the results of broader stock indexes, such as the Dow Jones Industrial. Such funds are often staples of retirement and individual investment accounts.
  6. 6. Alternate Strategies  To succeed, we need to use strategies that do not depend on information already priced into assets.
  7. 7. Option Strategies  Two strategies, independent of their underlying asset’s pricing, produces higher returns than the market.  Market Neutral pair trades  Discounted Cost Basis
  8. 8. Market Neutral  Counter Condor  An option pair trade of two inverse, leveraged ETFs  Only relies on market movement  Direction unimportant  Youtube Video  Counter Condor, the Ultimate in Market Neutrality
  9. 9. Discounted Cost Basis  Cost Basis of Stock  Equals Price of Stock  Equals Trade Risk  Discounted Cost Basis with Options  Equals Price of Stock Minus Credit Received  Risk Equals Reduced Cost Basis  Always Smaller than Cost Basis of Stock  Probability of Success  Always Greater than with Stock  PowerPoint  Discounted Cost Basis
  10. 10. The Pairs Builder Plan  Trade Small  Never Risk More than 5% of your Equity on a Trade  Trade with High Probability  Youtube Video  Credit Trades and the Probability of Trading Successfully  [I’m TheOptionShepherd]  Trade Frequently  By Trading Small with High Probability you can afford many trades per month  Trade with Lower Risk  Trade with High Return on Capital
  11. 11. 2013 Performance Trading Only 5%/Trade  Each month begins with $100,000. A maximum of 5% [$5,000] is invested in any trade. Profits are not accumulated.  Each month’s performance is calculated from actual trades that expired by the next month’s expiration date. It shows the gain of all trades expiring by February’s expiration date.