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Comment by ta1234567890 | Hacker News Reader

Open question: If, for one stock, you could predict tomorrow's closing price today (with 80% accuracy within 2% of the actual price), how would you trade that stock?

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It's easy to predict tomorrow's closing price with that accuracy: it will be the same as today's closing price.

For a large majority of S&P 500 stocks this prediction will be within 2% of the actual price very often (more than 80% of the days). In aggregate, the hit rate is over 80% as well.

Great, so how do you use that for a trading strategy?

You can't. What parent tries to explain is your predictions is no different than regular fluctuations, so you can't use it to get an edge.

Weekly out of the money options trades with short expires. It’s more gambling than anything else fwiw.

How far will it move if it doesn't land within the "80% accuracy"?

Try an iron condor - you’ll profit if the price of the underlying asset stays between two points

Buy call / puts (depending on the current price) near the target price, with very close expiry dates. This would maximize your convexity.

The bigger question is - what happens if you get the price 20% wrong? This might look like a winning strategy in a normal and calm market. But, it'll take only one day to wipe out all the gains.

That's an excellent question. It all depends on the strategy. How would you address that scenario?

More than 80% of stocks will close within 2% of previous day closing price.

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