Hold up. First of all, this does make sense.
If AAPL went from 130 -> 148, that results in a mean increase of $18/share.
The 134 has a premium of 0.10, so the breakeven is 134.10.
148.00 - 134.10 = $13.90 in change
$13.90 in change / $0.10 premium = 13,900%
So since that rough math was so close to 14,269%, I'm pretty sure I'm right.
when was the last time you saw a 3% OTM option jump up in value by 14,269% on a <15% move in the underlying?
Your logic is inherently flawed. This is for this friday's close. What's the chance of AAPL going up 15% until Friday? Nearly nil. Seriously. This makes sense. It says that 83% of the time the option will lose all it's value anyways -- meaning AAPL will stay under $134.10.
So this isn't wrong. Either your conception of what I'm doing is wrong, or your knowledge of options is wrong. :/
The one data point so far out is a product of a skewed distribution -- which is what AAPL has. You can run these simulations multiple, multiple times and you'll get outliers. Why? Because it's actually modelling AAPLs returns instead of a normal distribution. You are basically complaining that it is a more correct model than a normal distribution which you are used to seeing.
Let's run it five times and find the highest returns and relative return:
6717% -- 83.22%
8982% -- 87.47%
12206% -- 84.20%
11294% -- 86.60%
8509% -- 86.87%
And you'd know what you are saying doesn't make any sense if you looked at the source code (which nobody seems to want to do), because I normalize means and standard deviations in the skewed distributions. That's why the results are always so close.
And then another thing is that as I've said before, the simulation uses a lookback to gain a perspective on the future path of an asset, such as AAPL.
With a lookback of 0.2, it is looking back in this particular scenario to the past two and a half months of AAPL returns -- in which there has been a mean increase of 0.09%/day. This model assumes that AAPL will continue to increase at that rate with that distribution. The lookback can be changed to anything.
This means that with the continued movement, it'd increase. Clearly people aren't betting on the continued movement, if there's opportunity to average 274% on an option, eh? Clearly the price movement isn't sustainable.
Also, don't mix up median and mean. They are completely different -- especially in skewed distributions. The median return was -100%, while the mean return was 274%.
And here's the answer:
http://i.imgur.com/oSmUiDI.png
AAPL 138 Calls @ 0.02 do poorly with a mean return of 7%, and a relative annual return of 3.88%, so your thesis isn't more correct.
The fact that you’ve gotten all the way through running simulations, adjusting returns for risk and annualizing the numbers, and then planning on statistical arbitrage without stopping to think, “wait, that doesn’t seem quite right” is a real red flag that you are just “plug and chugging” formulas and equations that you don’t really understand or have any sense of what the implications are when those numbers come up several orders of magnitude outside of reality.
Are you like hydrocyanide's alt? You don't know who I am, and you don't know what I know. How in the hell are you making an assumption that I don't know what I'm doing with the formulas? Once again, you are welcome to look through the source code just like hydrocyanide was instead of just calling me unknowledgeable or whatever.
You're just as bad and just as wrong. Everything you've said has been nulled.
