1. How to Find Statistical Edges in Options Trading DISCLAIMER: All information contained in this presentation is general market commentary and should not be considered investment advice. No claim is made as to the accuracy or usefulness of any information provided. Trading involves a high level of risk. Futures, foreign currency exchange, and options involve an even greater level of risk. Consult your financial advisor before making an investment decision. Andrew Falde 2011

2. Today’s Objectives Compare “statistical” trading to “high probability” trading Learn how to use Excel formulas to determine reliability Find examples of good risk/reward trades using the custom indicator Discuss risk allocation and Greeks as it relates to building an options inventory

3. Layering Strategies Trend Following High Probability Income Statistical Arbitrage Occasional homerun Lots of small losses while waiting for the extended moves Frequent base hits Rewarded for holding risk Like hitting doubles Offers higher return on risk when the market does what it “typically” does

4. Deciding on Trades What happened the last 5 or 10 times What happened the last 500 or 1,000 times What I think will happen What the experts are saying FundamentalDiscretionary TechnicalStatistical

5. Example: What actually happens… Workbook How do volatility and trend indicators affect reliability? How far does it go before its likely to turn? What range does price usually end up in? What is the most common price move within a week? During the life of a weekly option…

6. What Can We Do With This Information Butterflies at the median target Iron Condor around the 50% range Receive 70% to 90% ROR with only 14% statistical risk! … Indicator

7. Risk Allocation / Greeks High Probability Income, Trend Positions, Etc… Short Term Good Risk/Reward Gamma is volatile Keep trades small Core Positions Delta leaning w/ trend Neutral Vega Positive Theta

8. Learn More If you already have a basic concept of excel formulas, programming, and want to learn about developing and back testing automated strategies on your own Rick Martin - rmartin@smbcap.com If you want to discuss a concept, get basic statistical information, build an excel calculator or Trade Station indicator Andrew Falde - andrew.falde@gmail.com