Casino strategy

The aim of these notes is to explain a strategy similar to that adopted by gambling casinos.

Referring to the roulette wheel, the casino doesn't mind paying out $35 whenever a player wins because, on average, it collects 36 times $1 for every one payout.

How would you feel if you won fifteen times $1 for every one payout of $9? Giving 9:1 odds when the true odds are 15:1 against? You would feel like a casino.

That is the nature of risk-free speculation.

A solid understanding of the basics is essential before you can implement the strategy. Do not skip the next few notes, even if you have traded options before.

The numbers must be in your favour

Take the roulette wheel's 36 numbers, half are red and half are black, half are even and half are odd, half are 18 and under, half are 19 and over. If that were all, an unbiased wheel would give you an even chance. However, the house that runs the wheel takes no risk because there is also a green zero (European wheel) plus a green double-zero (American wheel).

The player has 18 chances of winning, the house has 19 or 20 chances of winning. Or, if the player successfully bets a single number, the win is 35 bets but the number of losses between wins is 36 or 37, clearly a negative outcome overall.

A speculator is a person who is willing to risk the lot in order to make a killing. There are many markets in which this philosophy can be practised, but two stand out:

1. commodity futures trading; and

2. foreign exchange trading (forex).

The speculator tries to predict the future and takes highly levered positions accordingly. We accept that some bets will be lost, but we aim to have more chances of winning than of losing.

Countless tools exist to assist with the prediction:

• trendline analysis


• SCHM bands


• moving averages


• oscillators


• wave theories

All are useful, none are risk-free. To bring the numbers in your favour, you must add another layer to your predictions. That layer is OPTIONS.

How you can tame options to give you more winners than losers will be explained in due course.