BC TRADING
Saved by @ThomassRichards

1/

Get a cup of coffee.

In this thread, I'll help you understand Geometric Expectations.

 2/

Imagine we have an investment opportunity.

If the investment goes well, we get to double our money.

But if it goes badly, we'll end up losing three fourths of it.

There's a 50/50 chance of either outcome.

The question: is this a good bet or not?
3/

A simple way to approach this question is to calculate the bet's "expectation".

For every $1 we bet, there are 2 possibilities:

1. The lucky case, where we double our money and end up with $2, and

2. The unlucky case, where we lose (3/4)'th to end up with just $0.25.
4/

Each of these outcomes is equally likely.

So, on *average*, every $1 we put in turns into ($2 + $0.25)/2 = $1.125.

This is a *positive* 12.5% return.

Such bets are called *positive expectation* bets. On average, we expect to *make* (rather than *lose*) money on them.
5/

Suppose we could take many turns betting at these odds.

In any one turn, we could of course lose money.

But because our bet has positive expectation, *over time* we expect to make money.
6/

In fact, as we take more and more turns, our chances of making money approach 100%, and our chances of losing money approach 0%.

In this sense, positive expectation bets are *sure things*.

They're "good" bets to make.
7/

For example, suppose we place 100 bets at these odds.

Let's say we bet $1 each time. So, we *put in* $100.

In this case, there's a ~93.34% chance that we'll make money.

And on average, we expect to end up with $112.50 (our +12.5% expected return).
8/

In the scenario above, we did not let our 100 bets *compound*.

We bet the *same* $1 at each turn.

We did not take the winnings from our first turn and roll them into our second, and so on.

But if we did that, our money would grow even faster, right? At +12.5% per turn?
9/

So, if we start with $1, and take 100 turns betting at these odds, rolling over our winnings from each turn to the next, we'll most likely end up with something like $1 * (1.125^100) = ~$130K, right?

That's what compounding $1 at 12.5% a hundred times gets us.
10/

Sadly, no.

If we roll over our winnings 100 times, our chances of making money *drop* to a tiny ~0.04%.

That is, with probability more than 99.95%, we'll end up *losing* money.
11/

How is this possible?

Well, let's think about what happens to our $1 as it goes through this "compounding" process 100 times.

At every "lucky" turn, our wealth gets multiplied by 2 (doubled).

But at every "unlucky" turn, it gets multiplied by 1/4 -- as (3/4)'th is lost.
12/

So, each unlucky turn cancels out 2 lucky turns!

So, if we are to make money overall, the lucky turns will have to outnumber the unlucky turns at least 2 to 1.

That is, we need to get lucky at least twice as often as we get unlucky -- or we'll end up losing money.
13/

The chances of getting lucky that often are pretty slim -- because getting lucky or unlucky is a 50/50 thing.

Over 100 turns, we're most likely to get lucky 50 times and unlucky the other 50 times.

But to make money over 100 turns, we need to get lucky at least 67 times.
14/

So, it all comes down to whether we "roll over" our bets or not.

Without roll over, our expected return is +12.5% per bet.

But with roll over, our expected return per bet turns *negative* -- approaching -29.3% as we take more and more turns.
15/

Key lesson 1: Positive expectation bets, when rolled over, can lead to *negative* expected growth rates!

Each turn may carry a positive expectation. But the compounded effect of many turns can carry a negative expectation.
16/

So, there are really 2 kinds of expectations.

Our normal idea of expectation -- the return we expect to make without roll over -- is called *arithmetic* expectation.

But there's also *geometric* expectation. This is the return we expect to make with roll over.
17/

And as our example above showed, a bet can carry positive arithmetic expectation but negative geometric expectation.
18/

Let's take a general bet -- and derive formulas for its arithmetic and geometric expectations.

In general, a bet can have N possible outcomes:

With probability p_1, our money gets multiplied by f_1.

With probability p_2, it gets multiplied by f_2.

And so on.

Like so:
19/

Here are the formulas for the arithmetic and geometric expectations of such bets, along with a couple of examples:
20/

Key lesson 2: Even if a bet has positive arithmetic expectation, it may be a bad idea to roll it over repeatedly.

For roll over to be a good idea, the bet must have positive *geometric* expectation.
21/

The famous Kelly Criterion is a strategy that transforms an *arithmetic* advantage into a *geometric* one.

The idea is: if a bet has positive arithmetic expectation but negative geometric expectation, we only roll over *part* of our winnings, not *all* of them.
22/

For our "double or lose three fourths" example above, Kelly would only roll over (1/6)'th of our wealth from each turn into the next turn's bet.

This achieves an expected growth rate of +10.4% per turn -- much better than negative 29.3%!

For more: https://t.co/LjuaCg3mGm
23/

Another observation:

Whenever a bet has a non-zero chance of total loss, its geometric expectation is 0.

This is a Russian roulette type situation. Its (arithmetic) expectation may be positive, but if we keep pushing our luck and rolling over, we'll eventually blow up.
24/

To learn more about the origins of geometric expectations, I recommend reading Daniel Bernoulli's paper:

https://t.co/vN6yNvmk9J
25/

But if that's too much for you, here's a wonderful thread by @breakingthemark that summarizes the paper's main ideas: https://t.co/fdCd3X0E9B
26/

I also very much like this article by @TaylorPearsonMe that beautifully ties together many key ideas that come into play in such repeated betting scenarios: ergodicity, antifragility, barbell strategies, the Kelly Criterion, etc.

https://t.co/FHefGhuUWf
27/

And speaking of ergodicity and repeated betting, Prof. Sanjay Bakshi (@Sanjay__Bakshi) has created a wonderful set of slides exploring these ideas:

https://t.co/2OsvrmvxeX
28/

If you're still with me, thank you very much!

Stay safe. Enjoy your weekend!

/End

More from 10-K Diver

10-K Diver
10-K Diver
@10kdiver
1/

Get a cup of coffee.

In this thread, I'll walk you through 2 probability concepts: Standard Deviation (SD) and Mean Absolute Deviation (MAD).

This will give you insight into Fat Tails -- which are super useful in investing and in many other fields.


2/

Recently, I watched 2 probability "mini-lectures" on YouTube by Nassim Taleb.

One ~10 min lecture covered SD and MAD. The other ~6 min lecture covered Fat Tails.

In these ~16 mins, @nntaleb shared so many useful nuggets that I had to write this thread to unpack them.

3/

For those curious, here are the YouTube links to the lectures:

SD and MAD (~10 min): https://t.co/0TwubymdE6

Fat Tails (~6 min):

4/

The first thing to understand is the concept of a Random Variable.

In essence, a Random Variable is a number that depends on a random event.

For example, when we roll a die, we get a Random Variable -- a number from the set {1, 2, 3, 4, 5, 6}.

5/

Every Random Variable has a Probability Distribution.

This tells us all the possible values the Random Variable can take, and their respective probabilities.

For example, when we roll a fair die, we get a Random Variable with this Probability Distribution:
DS
10-K Diver
10-K Diver
@10kdiver
1/

Get a cup of coffee.

In this thread, I'll tell you a story about a man and his dog.

This will help you think more clearly about volatility, risk, and the relationship between the two.

2/

This is Mr. Biswas Singh.

Friends call him "Biz".

He's 50 years old. He owns and operates several gas stations and convenience stores around town.


3/

This is Spock.

He's a 4 year old Golden Retriever who belongs to Biz.

He's a Good Boy.


4/

Every morning, Biz takes Spock out for a walk.

They go to a local park that has a beautiful trail.

They get there around 6am.

They walk along the trail for about an hour -- until 7am or so.

Then they make their way back home.

5/

Biz walks more or less at a steady speed -- say, 3.5 miles per hour.

Spock, of course, does no such thing.

Sometimes, Spock races ahead of Biz -- straining his leash.

Other times, Spock lags behind Biz, distracted by a lamp post or a squirrel.
VOLATILITY AND RISK , LEARNINGS
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10-K Diver
10-K Diver
@10kdiver
1/

Get a cup of coffee.

In this thread, I'll walk you through the benefits of turning capital quickly.

The math behind turning capital is beautiful. It leads us to the number "e", which plays a vital role in so many different fields -- from astrophysics to biology.


2/

Imagine we have $1M.

Also, we know an extraordinarily generous bank where we can deposit this $1M.

This bank will pay us interest. And not a paltry 1% or 2%, but a hefty *100%* per year!

(I know, I know. But humor me, will you?)

3/

So, if we deposit our $1M at this bank, it will earn that 100% interest and become $2M in 1 years' time.

But that's *only* if the interest is *compounded annually*.

4/

What if the interest is *not* compounded annually?

For example, suppose it's compounded half yearly?

"Compounded half yearly" means: instead of paying us 100% interest *once* a year, the bank pays us 50% interest *twice* a year (ie, once every 6 months).

5/

That is, we get to "turn" our money twice -- each time earning 50% on it.

Here's a quick picture of how that looks.

The first 6 months will turn $1M into $1.5M (ie, +50%). And the second 6 months will turn this $1.5M into $2.25M (another +50%).
COMPOUNDING
10-K Diver
10-K Diver
@10kdiver
1/

Get a cup of coffee.

In this thread, I'll show you how the P/E ratio of a portfolio is related to the P/E ratios of its individual stocks.

The math here is beautiful. It involves harmonic means and a super elegant theorem known as the Cauchy-Schwarz Inequality.


2/

Earlier this week, I conducted a poll where I asked this question about P/E ratios.

Over 6,000 people responded.

Unfortunately, most of them got the answer wrong.

That's why I'm writing this thread. To (hopefully) correct some of the misconceptions that led people astray.


3/

To answer questions like this, it's always a good idea to go back to first principles.

In this case, we should ask ourselves: what exactly does a P/E ratio capture?

4/

We know that the P in P/E stands for Price. In other words, the amount we need to pay to acquire an asset today.

And the E stands for Earnings. The amount earned by our asset in the last 1 year.

5/

Note: P/E ratios come in more than 1 flavor.

For the E part, some people use earnings during the *last* 1 year. This is called the *trailing* P/E ratio.

Others use an estimate of earnings during the *next* 1 year. This is called the *forward* P/E ratio.
ALL
10-K Diver
10-K Diver
@10kdiver
1/

Get a cup of coffee.

In this thread, I'll walk you through the key differences between *earnings* and *cash flows*.

The punch line: Just because a company reports $1 of *earnings*, it does NOT mean the company has $1 more *cash* to distribute to owners.


2/

Before we look at a company's *earnings*, it's useful to understand the concept of Net Worth.

Net Worth (also called Book Value, or Shareholder's Equity) is simply the difference between what a company *owns* (ie, its assets) and what it *owes* (ie, its liabilities).


3/

Companies typically *own* a bunch of assets.

These include cash, "accounts receivable" (ie, money owed to the company by customers), "inventory" (ie, raw materials and finished products), "property, plant, and equipment" (ie, land, buildings, and factories), etc.


4/

Also, companies typically *owe* money or services to others (liabilities).

These include "accounts payable" (money owed to suppliers), "wages payable" (ie, money owed to employees for work they've already done), debt taken out by the company that has to be repaid, etc.


5/

Net Worth is what remains after we net out what a company *owns* against what it *owes*.

Companies that *own* more than they *owe* have positive net worth.

Companies that *owe* more than they *own* have negative net worth.
FUNDAMENTALS

More from Trading

Abhishek Kar
Abhishek Kar
@Abhishekkar_
FREE MINI STOCK MBA
If you wish to learn abt trading,psychology,options,business etc
You can go through this thread.
Other than this I do post videos on my YT channel : -Abhishek Kar & Tradiostation
-Intraday views on FREE telegram : Abhishek Kar Official
RT will be appreciated

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https://t.co/wabkek43I8

2. https://t.co/OIDenHKdWN

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Sahil Bloom
Sahil Bloom
@SahilBloom
Circle of Competence 101

Warren Buffett and Charlie Munger often reference the importance of knowing the boundaries of your circle of competence.

But what is a Circle of Competence and how does it work?

Here's Circle of Competence 101!


1/ First, a few definitions.

A Circle of Competence is the set of topic areas that align with a person's expertise.

If the entire world of information were to be expressed in a circle, an individual's Circle of Competence is the small sub-circle that represents their expertise.


2/ The idea surfaced in the 1996 BH annual letter.

"You don’t have to be an expert on every company...you only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital."


3/ A Circle of Competence is built over time.

It is built through experience, reading, dedicated study, and effort.

It is dynamic, not static.

It can expand as you deepen your knowledge in new areas. It can contract if you fail to nurture your existing areas of expertise.

4/ To engage this mental model in your life, there are two key processes to go through:

(1) Identify what falls within your circle
(2) Identify the boundaries of your circle

(1) is all about figuring out what you know, while (2) is about humbly admitting what you don’t.
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Trader knight
Trader knight
@Traderknight007
Overthinking - The art of creating problems which weren't even there.

Thread on How Over-analysis leads to decision Paralysis-


What is Analysis paralysis?

In simple terms, analysis paralysis is a person's tendency to over-analyze or over-think upon a decision to such an extent that he/she fails to make a choice resulting in a paralyzed state of inaction.


How a retail trader trades-

A trader named Rahul, He know all the basics of markets, He also has made a system which gives signals on nifty, he has also encorporated good Risk management and Position sizing into his system.

One day he gets a signal to buy Nifty at 13500 with stop at 13450, he wanted to take the trade, but he wanted to get sure that the trade he has take should be a winner.

So he says just let me check the RSI if its above this level I will buy , he checks it and it was above his

level, then again he wants to check another indicator named MACD, he wanted to get sure man, Now he do the most intelligent thing to get sure he gets right.

He goes to twitter and ask his twitter Friend Trader knight he ask him that should I buy nifty at 13500,
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Mohit Sharma
Mohit Sharma
@mohitsharmadl
Traders often overlook the SHORT STRADDLE due to its simplicity.

It remains the TOP strategy to make money when the market is not trending.

Here's how you can make money using only the short straddle
in various market conditions

⬇️ A comprehensive thread🧵


A short straddle is the most basic neutral options strategy.

Where a call option and a put option are sold at the same strike price.

Max profit = Total premium received ( call leg + put leg )

Max risk = Unlimited

(using SLs would be wise)

Upper breakeven = Strike price + Total Premium received

Lower breakeven = Strike price - Total Premium received


Essentially short straddles are initiated when the trader is confident about the market staying in a certain range (between the breakevens of the straddle)

Long-term short straddles usually require fewer adjustments since the range is wide.

Since unlimited loss is a component of the strategy, the trader has to adjust the strategy to increase profit/ mitigating risk
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Aditya Todmal
Aditya Todmal
@AdityaTodmal
Want to master Option Selling for free?

Here are the best resources.

A thread 🧵👇

Collaborated with @niki_poojary

1. Best book of knowledge for a beginner?

Zerodha Varsity from @Nithin0dha's team is the best book for a newcomer to read and increase his basic knowledge about options, especially for the Indian markets.

Link:

2. Best Youtube channel on Options Trading?

The @tastytrade financial network. It's a foreign channel that focuses mostly on selling options.

They teach all strategies for free with their backtests.

Big on Straddle/Strangles selling.

Links:

3. Top Indian YouTube Channel for Options?

Power of Stocks - Subhasish Pani

What you'll learn:
1. How to form a trading plan.
2. How to scale an account with risk-reward in option selling.
3. Technical analysis logics you can use daily.

15


4. What are the preconditions to start option Selling:

You should know technical Analysis basics like:
- Support/Resistance
- Chart Patterns
- Candle Patterns
- Dow Theory (HH, LL)

This will help you start taking high-probability trades.
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🌺श्री गरुड़ पुराण - संक्षिप्त वर्णन🌺

हिन्दु धर्म के 18 पुराणों में से एक गरुड़ पुराण का हिन्दु धर्म में बड़ा महत्व है। गरुड़ पुराण में मृत्यु के बाद सद्गती की व्याख्या मिलती है। इस पुराण के अधिष्ठातृ देव भगवान विष्णु हैं, इसलिए ये वैष्णव पुराण है।


गरुड़ पुराण के अनुसार हमारे कर्मों का फल हमें हमारे जीवन-काल में तो मिलता ही है परंतु मृत्यु के बाद भी अच्छे बुरे कार्यों का उनके अनुसार फल मिलता है। इस कारण इस पुराण में निहित ज्ञान को प्राप्त करने के लिए घर के किसी सदस्य की मृत्यु के बाद का समय निर्धारित किया गया है...

..ताकि उस समय हम जीवन-मरण से जुड़े सभी सत्य जान सकें और मृत्यु के कारण बिछडने वाले सदस्य का दुख कम हो सके।
गरुड़ पुराण में विष्णु की भक्ति व अवतारों का विस्तार से उसी प्रकार वर्णन मिलता है जिस प्रकार भगवत पुराण में।आरम्भ में मनु से सृष्टि की उत्पत्ति,ध्रुव चरित्र की कथा मिलती है।


तदुपरांत सुर्य व चंद्र ग्रहों के मंत्र, शिव-पार्वती मंत्र,इन्द्र सम्बंधित मंत्र,सरस्वती मंत्र और नौ शक्तियों के बारे में विस्तार से बताया गया है।
इस पुराण में उन्नीस हज़ार श्लोक बताए जाते हैं और इसे दो भागों में कहा जाता है।
प्रथम भाग में विष्णुभक्ति और पूजा विधियों का उल्लेख है।

मृत्यु के उपरांत गरुड़ पुराण के श्रवण का प्रावधान है ।
पुराण के द्वितीय भाग में 'प्रेतकल्प' का विस्तार से वर्णन और नरकों में जीव के पड़ने का वृत्तांत मिलता है। मरने के बाद मनुष्य की क्या गति होती है, उसका किस प्रकार की योनियों में जन्म होता है, प्रेत योनि से मुक्ति के उपाय...
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Anu Satheesh \U0001f1ee\U0001f1f3
Anu Satheesh 🇮🇳...
@AnuSatheesh5
Chennimalai Murugan Kovil
#Erode
#TamilNaduTemples 🚩

Chennimalai Murugan Temple is located  near Perunthurai in Erode District. Murugan is worshipped here as Dandayudapani. Temple is situated on the banks of Noyyal river also called Kanchima Nadhi. Temple is situated in a hill


Sthala Puranam says that, there lived a Landlord who had many cows in his farm. One among them was a Black Cow, which didn't give milk. Land lord observed that evening time, when all the cows came back after grazing, this cow used to go to a particular spot and gave all  the milk


by itself. He decided to dig the spot where the cow gave its milk

On digging a beautiful Vigraham of Murugan was found, but lower portion was very rough. So he called a great sculptor to soften it. Everyone was shocked to see that on the first chisel the vigraham bleeded.


Land lord realized that Murugan wanted the Vigraham the way it was.

Thus Prathishta was done on Chennimalai hill. It is believed that Sivalaya Chola got relieved from his Brahmahatti Dosha here. Kanda Shasti Kavacham was first offered here.

Muruganukku Haro Hara
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श्रीमाली हितेश अवस्थी...
@HiteshAwasthi89
Stambheshwar Mahadev Temple, Kavi Kamboi, Bharuch, Gujarat

Stambheshwar Mahadev is a Hindu Temple dedicated to Bhagwan Shiva, located in Kavi Kamboi in Bharuch District District of Gujarat, India. The Temple is about 150 years old. 1/n


The Temple is also known as the Submerging temple. The Temple is flanked by the Arabian Sea on one side and the Bay of Cambay on the other side.

As per legend, Tarakasura troubled the common people, sages and devas a lot. 2/n


Hence, Bhagwan Kartikeya k!lled him, but later he felt guilty for killing a demon who was a great devotee of Shiva. He went to Prabhu Vishnu and told about his guilty. Bhagwan Vishnu advised him to install a Shiva Linga to get relief from the sin. 3/n


As advised, he installed the Shiva Linga in this place and prayed to Bhagwan Shiva to forgive his sin.
The temple is located in Kavi Kamboi between the shores of Bay of Cambay and the Arabian Sea. This Temple is very simple temple in terms of architecture. 4/n


Every day, during the high tide hours, the temple submerges, and when the tide level becomes normal, the temple reappears again. The Temple houses a 4 feet high Shiva lingam. The Lingam can be seen during low tide. The visit to the temple should be planned in such a way that..5/n
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Anu Satheesh \U0001f1ee\U0001f1f3
Anu Satheesh 🇮🇳...
@AnuSatheesh5
Agastya Muni & Kaveri River
#story
This is a story which describes how River Kaveri was brought on earth by Agastya muni. There was a king named Kavera lived in the Brahmagiri hills who prayed to Brahma for a child. He was blessed with a daughter whom he named Kaveri.


Agastya muni married her. A demon, named Shoorapadma, wanted to trouble people so he prevented rain from reaching South India. As a result famine occurred in South India.
Agastya Muni who came that way was very sad seeing this. He started to pray Mahadeva for a solution.


Shiva gave him small amount of Ganga water in his Kamandalu (small pot) and said wherever you spill this water the river will flow from there. Agastya Muni travelled lot of places to find a suitable place to pour water. Feeling tired he kept his Kamandalu and took rest.


At that time Ganesha took a form of crow and perched on the Kamadalu and made a hole that water began to flow as river Kaveri. This place is now called as Talakaveri (Karnataka), located in the Brahmagiri hill.


Tala Kaveri has temple for Agastheeswara, which denotes the story between Kaveri and Agasthya muni. Kaveri is a part of Ganga, thus, also called Dakshina Ganga.
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