Читать книгу Options for everybody - Stefan Deutschmann - Страница 7

1. General information

1.1 A game of probabilities?!

At this point you don't have to understand exactly what I will tell you in the following lines. If you've never been exposed to options in your life, it's no big deal. Actually, it might even be an advantage if you haven't had any points of contact yet. But before we even talk about options, I'd like to talk about how casinos and insurance companies make money. Now you're probably thinking, "Wait a second, casinos and insurance companies? What do I care? I'm here to make money." Just listen to me for a moment, after the example, you'll understand a little better what it's all about - promised.

That's how casinos make money. It's absolutely simple and you probably already knew it, but they make money with small theoretical probability imbalances in each of the hundreds of games of chance. Simply put, if you know that the probability of a coin toss falling head or tail is 50%, the casino could pay you 10 USD if the coin lands on head, but 11 USD if it lands on tail. Either the casinos set the games so that the odds are in their favor or they either pay out a sum based on the odds of an event.

Let's just have some roulette. Basically a roulette wheel has 36 numbered fields, black and red and probably you have heard in movies "I will go to Vegas and bet everything on red". Most of these roulette tables have either one, two or sometimes three green squares and either a zero, double zero or even triple zero. Have you ever noticed them? Basically, when you go into a casino, these numbers, these double zeros, triple zeros, and all that stuff tend to be in favor of the casino. If you bet on a color, the probability of winning is 1:1, so if you bet 10 USD, you can win 10 USD. Banally speaking, you win 100%. So you first assume that you have a 50% chance of winning, right? The reality is that in most casinos, especially American ones, the probability of hitting black or red every time is only 46.37%. This is due to the additional green areas on the roulette table.

Another question to ask yourself in this context is: Why do casinos have table limits? They have table limits because they increase the number of games a person will play, which increases the house advantage of the casino. Look, the longer you play, the more you can lose. Casinos deliberately set table limits to control how often someone plays a game. The reason they do this is because they don't want you to come around the corner and bet, for example, directly 1 million USD on black or red. The risk would be much too high for the casino in this case. But if you would come for years and bet only 10 USD per game each time, then they would accept this bet in any case, because the statistics clearly play against you here.

Or let's take insurance companys. Imagine you have car insurance for which you pay premiums year after year. How often have you actually used it and how much have you paid in? Insurance companies also work according to the principle of probability, calculate their risk and let you pay a corresponding premium. The statistics are also on the side of the other party.

Why would you care about all this? What would it be like if you could also be the "bank" on the capital markets and exceptionally the probability theory could be used in your favour? Exciting, isn't it? Let's go on this journey together, everything will be explained to you if you are patient and eager to learn.

Remember:

The most reliable and consistent profits are achieved on the basis of probability and statistics.

You can use these for yourself without being a genius á la Beautiful Mind or having studied math.