In this short video I explain how the OVI works so well, how it worked a treat on two stocks this weekend, and how you can use it moving forward.
[usercontrol: /User controls/CamtasiaPlayer.ascx FlashFile=AAPLAMZN2011.02.28; Size=large; Align=center;PlayerType=mp4;]
The Early OVI Project Status
As you may know, we’ve been working on a way of getting the OVI updated earlier by around 16 hours. The implications looked very exciting to say the least.
You see the OVI as a simple line that goes up and down above and below a centre line. However, the mathematics behind the OVI is rather sophisticated. Changing one element of the formula has far-reaching ramifications and it was when we looked under the microscope, that we found that an expected change in fact turned out somewhat differently!
How could this be?
Well, it all has to do with how the OVI is constructed around strikes and expirations of options transaction data.
The “Current” OVI that we’re using, relies on specific strikes and expirations in such a way that it is already anticipating future stock price movement. This was something whose value I completely underestimated. This is why in many cases, and particularly with my specific trading plan, the OVI can be predictive in nature.
The new “Early” OVI updates various aspects of the OVI calculation, however, by using fresher data, the Early version cannot “anticipate” future stock price movement in the same way as the “Current” OVI.
In other words, what we found was that the “anticipated” future stock value part of the equation, works better(!) than the actual updated stock value. This was a complete shock to me, and we are therefore testing new parameters as I write this email to you.
So for now, the Current OVI is in fact still streets ahead of all the other variants that we’ve analysed, and I trust that the video link attached here will give you that confidence as to when and how to use it.
So, I’m still hoping to deliver some improvements to it in the next few weeks but we won’t simply deploy an improvement if it isn’t actually one.
All the best
Guy