Last night I watched an absolutely brilliant video on Markov chains. It hid its real conclusion surprisingly well. It started with a simple question of how many times must a deck of cards be shuffled to be truly random and then it began explaining a feud between two mathematicians during the Russian revolution.
This ended up leading us through the Manhattan Project and finally to today where the basic Markov chain has gotten more complex over time and is still the basis for how current large language models work or what common people call AI.
It was so brilliant because before the video I didn’t understand what AI thinking in tokens meant, but now I understand a token is a predictive chain that could be a single letter all the way up to common sentences or even chains of sentences. As an AI to finish, “Let us go then you and I…” and you are more likely to get the correct output than finish, “It was a dark and stormy night…” It also explains why AI is addicted to certain phrases, and, honestly, now that I know that it isn’t disbelief, it’s understanding. Sorry that felt forced.
Either way the important thing is I hold a January $195 strike Nvidia long option and I want to know the probably outcomes for what could happen. Since the stock market is a deterministic sequence of events and stock prices really can only exist in two states, up or down, and since stocks behave in predictable ways around earnings we can create probabilities for how my Nvidia call will behave in the coming weeks.
In other words is the 26th before earnings the best time to sell or is it several weeks later or is there another sequence of events. Sell before earnings, let the stock drop, rebuy after. An option isn’t ownership and operates under different rules. Buying and selling stocks creates additional tax exposure where buying and selling options is the same exposer.
Anyway, I woke up at 4:30 AM with these thoughts in my head and wanted to see how reliably I could determine the next link in this chain of events or if I just wait until I can get what I want, harvest it, and be happy with a positive outcome even if not the optimal outcome.
David Huzzard Writes 