Average Probability Skew strategy

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I collect the strike prices and put them in chatGPT. Below is what I received based on your rules.

Do you think this is accurate? Thank you.

XAU/USD
To calculate the ratio of the differences, follow these steps:

1. Calculate the difference between the highest strike and middle strike.
2. Calculate the difference between the middle strike and lowest strike.
3. Divide the result from step 1 by the result from step 2.

For the first set of values:

1. Difference (highest-middle) = 2074.4 - 2032.8 = 41.6
2. Difference (middle-lowest) = 2032.8 - 2004.2 = 28.6
3. Ratio = 41.6 / 28.6 ≈ 1.4545 (rounded to 4 decimal places)

For the second set of values:

1. Difference (highest-middle) = 2061 - 2029.6 = 31.4
2. Difference (middle-lowest) = 2029.6 - 1994.3 = 35.3
3. Ratio = 31.4 / 35.3 ≈ 0.8895 (rounded to 4 decimal places)

The first ratio is approximately 1.4545, and the second ratio is approximately 0.8895. Since the ratio decreases from the first set to the second set, you would sell according to the given rule.

You have to average the ratios.

Please, go on. It is a so original way of trading.
May you explain better how to read and use the widget?

Got it. Thank you @costos

 

1. Calculate the difference between the highest strike and middle strike.
2. Calculate the difference between the middle strike and lowest strike.
3. Divide the result from step 1 by the result from step 2.

For the first set of values:

1. Difference (highest-middle) = 2074.4 - 2032.8 = 41.6
2. Difference (middle-lowest) = 2032.8 - 2004.2 = 28.6
3. Ratio = 41.6 / 28.6 ≈ 1.4545 (rounded to 4 decimal places)

For the second set of values:

1. Difference (highest-middle) = 2061 - 2029.6 = 31.4
2. Difference (middle-lowest) = 2029.6 - 1994.3 = 35.3
3. Ratio = 31.4 / 35.3 ≈ 0.8895 (rounded to 4 decimal places)

For the third set of values:

1. Difference (highest-middle) = 2057.1 - 2026 = 31.1
2. Difference (middle-lowest) = 2026 - 1999 = 27
3. Ratio = 31.1 / 27 ≈ 1.1519 (rounded to 4 decimal places)

For the fourth set of values:

1. Difference (highest-middle) = 2057.1 - 2026.1 = 31
2. Difference (middle-lowest) = 2026.1 - 1991.8 = 34.3
3. Ratio = 31 / 34.3 ≈ 0.9035 (rounded to 4 decimal places)

For the fifth set of values:

1. Difference (highest-middle) = 2066.8 - 2029.5 = 37.3
2. Difference (middle-lowest) = 2029.5 - 2003.9 = 25.6
3. Ratio = 37.3 / 25.6 ≈ 1.4570 (rounded to 4 decimal places)

The ratios for each set of values are approximately 1.4545, 0.8895, 1.1519, 0.9035, and 1.4570.
Now, let's average the ratio over the last set of data:
(1.4545 + 0.8895 + 1.1519 + 0.9035 + 1.4570) / 5 ≈ 1.1713 (rounded to 4 decimal places)
The average ratio is approximately 1.1713. Based on the given rule, if the ratio increases, you buy, and if the ratio decreases, you sell. Since the average ratio (1.1713) is lower than the ratio for the last set of data (1.4570), the overall trend is increasing, so you would buy.

It's not so simple. It does not show you the trend. This just shows there may be bias in bank's model as to where the currency pair is more likely to be at a given moment in time - for whatever reason. We do not know what exactly goes into the model. We do not know if the model is accurate - because it does not have to be for all intents and purposes.

What it shows is a reflection of the of the business that the Banks' clients are doing. Skew will be greater on calls if there are more clients hedging to the upside and conversely greater on puts if there are more clients hedging to the downside. The % chance of a particular strike being in the money is the delta.

I actually believe it may be not so, or at least not entirely so. The pricing has to reflect the markets, regardless of what the options clients are doing. But who knows.

Why did you remove the first post? I read it the other day and thought it was promising. I wanted to come back now and review it, only to find it's gone!

Your profile says you are from North Korea.

Yeah, it's a total lie and totally irrelevant to the question I asked you... the question which you've avoided answering.

Give me an offer I can't refuse and I'll make it rain.

No, I don't think I'll bother. You could have just ignored me completely, told me that you had your own reasons or answered my perfectly reasonable question truthfully, but instead you've chosen to be an ass about it.

He retracted it because it doesn't work

Little Britain S01E01 Computer says no (https://www.youtube.com/watch?v=CmjGUbZyopY)