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Options Jive

Market Randomness

Mar 14, 2016

We believe in both the Random Walk Theory which states that within liquid underlyings, stock market prices are a succession of statistically random steps that cannot be predicted. The Efficient Market Hypothesis states that the price in the market has all known news priced in and that belief in those two ideas will keep you focused on strategy rather than market direction.

A graph of SPY daily returns versus SPY daily returns with a 1 day lag was displayed. The graph showed no correlation and that today’s returns tell you nothing about tomorrow. Another graph showed the results of testing for correlation of a day and then different days ahead. Each line of the graph was a correlation between a day and a lag (days) ahead. The graph showed that no correlation exists between any of the days.

Another recent segment we've done on market randomness is a Market Measures segment called Random Walk After Market Movements. The episode aired on February 3rd, 2016.

Watch this segment of “Options Jive” with Tom Sosnoff and Tony Battista for the valuable correlations and why a sound strategy that gives you the best odds of success is the key and not successful directional trading.

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