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Technology Stocks : LSI Corporation
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To: RFF who wrote (12423)5/15/1998 6:02:00 PM
From: shane forbes  Read Replies (2) of 25814
 
Try this reasoning out:

Reasonably Aggressive (ignoring those whacko spikes):
LSI sinks <= 18.5 - probability 10%
LSI sinks <= 19.5 - probability 30%
LSI sinks <= 20.5 - probability 40%
LSI sinks <= 21.5 - probability 50%
LSI sinks <= 22.5 - probability 70%
LSI sinks <= 23.5 - probability 100%

(above is a cdf not pdf)

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Scenario A:
Establish limit buys at 23, 22, 21, 20, 19, 18 - equal dollars
Expected average buying price:
18(.1-.0) + 19 (.3-.2) + ... + 23 (1.0 - 0.7) = 21

So if I buy at 23 1/4 I have not killed myself.

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Scenario B:
Do all your buying only with a limit buy at 20.
Expected average buying price = 20 (duh!) with 60% chance you get no fill. Not bad. But not much of a difference from the average (certainty of) 21 in A.

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Scenario C:

Buy 1 at 23, 2 at 22, 3 at 21, ... 6 at 18.

Expected Average Buying Price:
1/3 * { 18*(6 * .1) + 19(5*.2) + ... + 23(1 * 0.3) } = 20

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So no need to worry - be happy. Scenario C gives you piece of mind but there is a chance you won't commit enough of your cash. I would do confidence intervals but not in the mood!!!

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Shane.
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