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Gold/Mining/Energy : Newmont Mining(NEM) & Newmont Gold(NGC)
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To: SgtPepper who wrote (250)6/1/1999 2:29:00 PM
From: ahhaha  Read Replies (2) of 587
 
Future earnings are always unknown, but it is that which makes "beating the market" possible. The stock market attempts to guess them. The cumulation of many guesses gets closer and closer as time passes to the actual fact. That's why the term "expectation of future earnings" is used. Stocks fluctuate in price to reflect changing expectations, not changes in fact. The changes are completely random in time, but not completely random in magnitude. If a stock has strongly convicted expectations then the direction will have a normal distribution whose mean is not zero. This observed result is trend. A stock still randomly walks its trend, so at no point can you conclude that the stock will go in any particular direction. But you can bet that the price will approach the worth of the entity which the stock represents. In that you're not trying to beat the random walk, you're trying to take advantage of it by taking a random fluctuation away from the trend as an entry point. You have to know though where the trend is and if it has a good chance to persist. You are still taking a risk and just guessing that things will work out.

When an option series is first struck the pricing by market makers and public is based on historical parameters only since there is no other criteria available. Almost always this means the premiums are too fat. You will see that in the first few days options are likely to plunge more than can be justified by theoretical model evaluations. It is somewhat difficult from the public's perspective to take advantage of this circumstance, but if you book to sell short above/below, you might be able to trap in because the instability of price is also associated with the market's attempt to determine proper pricing. High volatility is the market's way to find equilibrium.

BB trades are almost all a game of psychology since the entities under the stocks are completely indeterminate in worth. Few survive that activity and the few that do learn to quit and stay out. The probability of success is one of the lowest anywhere approaching lottery expectations. Say, 1 success out of 100 tries. You make 50 times on your money but you go broke exponentially fast close to n^1/2 rate where n = trials.
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