Wednesday, August 8, 2007

From the Archives: The Zone System

Each Wednesday we'll reach back into our 25-year archive of commentary by our founder, Jim Yates. Here's an excerpt from 1994's The Yates Guide to Profitable Options Investing:

The Zone system is based on an analysis of the deviation of a stock's price from it's trend. Zones are the six areas under a normal bell-shaped curve defined by standard deviations. Zone 1 represents the area that is between two and three standard deviations below the mean. Zone 6 is at the other extreme. Zones 1 and 6 are the farthest points from a stock's mean, or where it has historically migrated during reversion to the mean. The mean is the vertical line bisecting the normal curve and it's called the trend.

Because it's future distribution we're concerned about, the implied volatility for the stock is used to estimate that standard deviation. Implied volatility is the annualized standard deviation that justifies the current options price. This is a particularly important statistic because it's the only market-derivable statistic that represents a forecast of future price movements.

We use two time frames for analysis, 10 days and 90 days. There's nothing magical about these two time frames, they were chosen because they fit the profile of a short-term trader and options hedger.

In the process of the evaluation, each Zone is expanded to a 33-point scale. A stock that is at the three standard deviation limit, or Zones 1 and 6, could then be said to be either 99% oversold (Zone 1) or 99% overbought (Zone 6).

The beauty of the Zone system is that it's easy to use. By simply identifying which Zone a stock's in, you can formulate a strategy. Next week we'll describe a tool we've named the Options Strategy Spectrum. The similarity between the Options Strategy Spectrum and the normal distribution curve is no coincidence. They're the same, but we've broken down the bell curve into Zones that delineate which stock-and-options strategy is appropriate at the time. Zones 1, 2 and 3 are below the mean (or oversold), while Zones 4,5 and 6 are above the mean (or overbought).

The Zone system is simply another way of looking at the market, but from a risk perspective. One advantage of the system is that it allows direct comparison of the overall market, market sectors and individual stocks at the same time. Every market index, sector index and individual issue will visit each Zone over the course of time. When issues move to the extreme Zones, the probability is high that the next move will be back toward the mean, assuming the volatility estimate delivered by the market proves reliable.

The Zone system can be compared to a map. While a map may be of significant benefit in determining where you are headed, it's most important contribution is detailing where you are right now. If you don't know your current location, it's nearly impossible to locate the path to your desired destination.

49 comments:

Anonymous said...

Hi I'd like to congratulate you for such a terrific made site!
I was sure this would be a perfect way to introduce myself!

Sincerely,
Edwyn Sammy
if you're ever bored check out my site!
[url=http://www.partyopedia.com/articles/st-patricks-day-party-supplies.html]st patricks day Party Supplies[/url].

Anonymous said...

[url=http://www.kfarbair.com][img]http://www.kfarbair.com/_images/logo.png[/img][/url]

מלון [url=http://www.kfarbair.com]כפר בעיר[/url] - אווירה כפרית, [url=http://www.kfarbair.com/about.html]חדרים[/url] מרווחים, שירות חדרים, אינטימיות, שלווה, [url=http://kfarbair.com/services.html]שקט[/url] . אנו מספקים שירותי אירוח מיוחדים גם יש במקום שירות חדרים המכיל [url=http://www.kfarbair.com/eng/index.html]סעודות רומנטיות[/url] במחירים מיוחדים אשר מוגשות ישירות לחדרכם!

לפרטים אנא לפנות לאתר האינטרנט שלנו - [url=http://kfarbair.com]כפר בעיר[/url] [url=http://www.kfarbair.com/contact.html][img]http://www.kfarbair.com/_images/apixel.gif[/img][/url]

Anonymous said...

Hello. My wife and I bought our house about 6 months ago. It was a foreclosure and we were able to get a great deal on it. We also took advantage of the 8K tax credit so that definitely helped. We did an extensive remodeling job and now I want to refinance to cut the term to a 20 or 15 year loan. Does anyone know any good sites for mortgage information? Thanks!

Mike

Anonymous said...

[b]hi all, i found this website and wonder if anyone purchased cookbook software from them ?[/b]

Anonymous said...

Do you like to bet your money at casinos? If so, you are not alone. The online casino industry has taken off over the past few years, and if you can become familiar with the intricacies you may be able to win a lot of money. When it comes down to it there are many internet casinos that you can bet at, with each one offering plenty of games to choose from. In fact, some casinos offer in upwards of 100 games. Talk about having every opportunity in the world to find a game that you can win with.
[url=http://www.casinolesoleil.com]casino[/url] http://www.casinolesoleil.com casino Lastly you should check the minimum bets for the entire casino site that you are playing with. Just like live casinos, online casinos put minimum bet amounts in place to ensure that they are making enough money off of their patrons. Most of the larger casinos will have small bet amounts that will attract a larger crowd, but some of the smaller sites will have larger amounts, sometimes not affordable to the every once in a while player, to make up for the lack of players.
[url=http://www.redlotuscasino.com]casino[/url] http://www.redlotuscasino.com casino Before trying online casinos, however, it is important to keep some things in mind. First of all, you have to make sure that the site you are playing on is legitimate and honest. Remember that in the internet, it is so easy to be fooled. You might transfer money into a fraudulent account, and lose what you have. So be on the look out for these dangers. Make sure that you are checking in only on online casinos that are honest in dealing with their players. [url=http://www.triumphcasino.com]online casino[/url] http://www.triumphcasino.com casino http://www.affrewards.com [url=http://www.affrewards.com]casino affiliate program[/url] On each one of these bingo cards, you will find 27 spaces grouped in 9 columns x 3 rows format. Each number is unduplicated; hence, it will not be repeated anywhere else in the sheet. [url=http://www.bingokisses.com]bingo[/url] [url=http://www.bingoeuphoria.com]bingo[/url] bingo bingo http://www.bingokisses.com http://www.bingoeuphoria.com The bingo sites are friendly and attractive with many new people to meet and befriend, there is so much to do that there are not enough hours in the day (or night!). Many people enjoy the game of bingo, which is fast becoming the worlds most popular game.
http://www.casinolesoleil.com http://www.redlotuscasino.com http://www.triumphcasino.com http://www.bingokisses.com http://www.bingoeuphoria.com http://www.pulsebet.com http://www.affrewards.com http://www.thehighrollerclub.com
http://www.buyphentermine1.com [url=http://www.buyphentermine1.com]phentermine[/url] http://www.norxbuy.com buy phentermine

Anonymous said...

ciproflaxin and alcohol effects http://alcoholboutique.com/after-shock-citrus-liqueur.html alcohol content in guinness [url=http://alcoholboutique.com/whyte-and-mackay-30-yo-whisky.html]fun facts on alcohol[/url] kentucky alcohol and drug school

Anonymous said...

absolute free dating site http://loveepicentre.com/map.php james albright dating madonna

Anonymous said...

types of relative dating http://loveepicentre.com/ dating for married doctors in usa

Anonymous said...

[url=http://onlinecasinose25.com ]online casino [/url]1.E.4. Do not unlink or detach or remove the full Project Gutenberg-tm http://casinoonlinebonussverige.com 99 slots online casino casino online Now for our consciences, the arms are fair,

Anonymous said...

Wow, that's what I was searching for, what a material! existing here at this webpage, thanks admin of this web site.
Take a look at my blog post ; online slots for real money

Anonymous said...

top [url=http://www.001casino.com/]casino[/url] check the latest [url=http://www.realcazinoz.com/]online casinos[/url] free no store perk at the chief [url=http://www.baywatchcasino.com/]baywatch casino
[/url].

Anonymous said...

snoop ebook http://audiobookscollection.co.uk/Taste-of-Lightning/p226720/ catalysis paul emmet ebook reinold corp [url=http://audiobookscollection.co.uk/fr/Am-riques/c1087/?page=5]free ebook for visual basic6.0[/url] einstein's theory of relativity ebook

Anonymous said...

become popular ebook http://audiobookscollection.co.uk/it/Critical-Thinking-Tools-for-Taking-Charge-of-Your-Professional-and-Personal-Life/p145560/ ebook sudoku variants [url=http://audiobookscollection.co.uk/Blood-Meridian-Or-the-Evening-Redness-in-the-West/p206547/]piers anthony ebook lot[/url] ebook 8086 pdf

Anonymous said...

lake toba ebook http://audiobooksplanet.co.uk/fr/authors/?letter=R zune ebook creator [url=http://audiobooksplanet.co.uk/Robert-Ubell/m109645/]water treatment membrane process ebook[/url] cool-er ebook review

Anonymous said...

windows xp command line ebook http://audiobooksplanet.co.uk/Laurell-K-Hamilton/m74993/ eternity piers anthony ebook [url=http://audiobooksplanet.co.uk/it/Kent-Nabors/m71811/]free ebook on mother sauces recipes[/url] downloab ebook overdrive

Anonymous said...

deamweaver cs3 for dummies ebook http://audiobooksworld.co.uk/Takatoshi-Ito/m122841/ nina ebook download xxx comic [url=http://audiobooksworld.co.uk/Cooking-the-Hungarian-Way-Revised-and-Expanded-to-Include-New-Low-Fat-and-Vegetarian-Recipes/p172273/]bit torrent ebook[/url] promises in death ebook uk
[url=http://audiobooksworld.co.uk/es/Inside-Mac-OS-X-System-Overview/p104287/][img]http://audiobooksworld.co.uk/image/6.gif[/img][/url]

Anonymous said...

Hello. And Bye. Thank you very much.

Anonymous said...

Hello. And Bye. Thank you very much.

Anonymous said...

palm os software v 4.0 http://buyoem.co.uk/it/product-37183/Watermark-Master-2-2-Portable computer software for writing fitness programs [url=http://buyoem.co.uk/es/latest-products?page=4]adams mechanical simulation software[/url] gaming peak software dowload
[url=http://buyoem.co.uk/latest-products]Latest Products - Software Store[/url] windows microsoft software malicious
[url=http://buyoem.co.uk/fr/product-37121/MaxDB-Data-Wizard-7-8][img]http://buyoem.co.uk/image/7.gif[/img][/url]

Anonymous said...

simple scrapbook boutique software http://buysoftwareonline.co.uk/category-100-110/Internet?page=6 dvd software photo album [url=http://buysoftwareonline.co.uk/de/product-36830/IBM-SPSS-Text-Analytics-for-Surveys-4-0-x64]bible free software ware[/url] ged genealogy software
[url=http://buysoftwareonline.co.uk/category-3/Graphics-and-Publishing?page=2]Graphics & Publishing - Download OEM, Software Sale, OEM Software[/url] dvgate plus software
[url=http://buysoftwareonline.co.uk/it/category-100-105/Diagnostica-di-PC][img]http://buyoem.co.uk/image/4.gif[/img][/url]

Anonymous said...

Hi, order ativan online no prescription - lorazepam online pharmacy http://indiarss.net/, [url=http://indiarss.net/]lorazepam for sale [/url]

Anonymous said...

Hi, ativan online - buy ativan online http://indiarss.net/, [url=http://indiarss.net/]buy lorazepam [/url]

Anonymous said...

Li, Modafinil Price - order modafinil http://www.provigilbenefitsonline.net/, [url=http://www.provigilbenefitsonline.net/]Modafinil Price[/url]

Anonymous said...

4, Eszopiclone Price - order lunesta http://www.lunestasleepaid.net/, [url=http://www.lunestasleepaid.net/] Lunesta Sale [/url]

Anonymous said...

4, Cheap Accutane - order accutane http://www.benefitsofisotretinoin.net/, [url=http://www.benefitsofisotretinoin.net/]Generic Accutane Cost[/url]

Anonymous said...

4, Isotretinoin No Prescription - cheap accutane http://www.benefitsofisotretinoin.net/, [url=http://www.benefitsofisotretinoin.net/]Cheap Accutane[/url]

Anonymous said...

2, [url=http://www.highdesertrc.com/]Tamoxifen Online[/url] - Order Nolvadex - buy nolvadex online without prescription http://www.highdesertrc.com/ .

Anonymous said...

5, [url=http://www.nexiumpricewatch.net/] Cheap Nexium [/url] - Buy Nexium - buy nexium online http://www.nexiumpricewatch.net/ .

Anonymous said...

5, buy venlafaxine er - generic effexor xr - generic effexor cost http://www.costofeffexor.net/.

Anonymous said...

12, Imitrex Online - Sumatriptan Online - buy sumatriptan no prescription http://piluladodiaseguinte.net/ .

Anonymous said...

12, [url=http://www.adipex37-5rx.com/]generic adipex without prescription [/url] - buy adipex online no rx - buy generic adipex http://www.adipex37-5rx.com/.

Anonymous said...

Great goods from you, man. I've understand your stuff previous to and you are just too wonderful. I really like what you've acquired here, certainly like what you're stating and the way in which you say it. You make it entertaining and you still take care of to keep it sensible. I can not wait to read much more from you. This is really a tremendous website.

My site: sian

Anonymous said...

The post offers established helρful tо me.

It’s extгemelу hеlpful and yοu are naturally гeally
experiеnсeԁ in this fіelԁ.

You havе got oρened up my реrsonаl fаce іn orԁеr to numеrous thoughts about thіs particular subject along wіth іntriguіng, nοtable and
sound writtеn content.
Here is my web site :: Xanax

Anonymous said...

Fantastic blog you have here but I was curious if you knew of any community forums
that cover the same topics talked about in this article?
I'd really like to be a part of community where I can get advice from other knowledgeable individuals that share the same interest. If you have any suggestions, please let me know. Thanks a lot!

Review my webpage :: http://www.youtube.com/watch?v=jLuC1nG5cPk

Anonymous said...

This page truly has all the information I needed concerning this subject and didn't know who to ask.

Feel free to visit my web site ... http://www.youtube.com/watch?v=pwex99npRdc

Anonymous said...

I'm gone to tell my little brother, that he should also pay a visit this blog on regular basis to take updated from most up-to-date news.

My web-site ... quick ways To make money online

Anonymous said...

Your own write-up featureѕ confіrmed benеficiаl to me personallу.

It’s extremely helpful and you really aгe οbνiously ѵery experienced of this type.
Үou get pοppеd my рersonаl sight for you tο νariouѕ thoughts about this ѕubject with interesting and гeliable content.


Feel free to visit my web page; ambien

Anonymous said...

[url=http://my.moverapid.com/femininepower][img]http://my.moverapid.com/promo.gif[/img][/url]





[size=4][url=http://my.moverapid.com/femininepower][b][color=blue]Buy [/color][color=red]Feminine Power[/color][color=blue] ONLINE - click here![/color][/b][/url][/size]

Anonymous said...

[url=http://my.moverapid.com/tject][img]http://my.moverapid.com/promo.gif[/img][/url]





[size=4][url=http://my.moverapid.com/tject][b][color=blue]Buy [/color][color=red]T-Ject 60[/color][color=blue] ONLINE - click here![/color][/b][/url][/size]

Anonymous said...

shakira dating http://loveepicentre.com/articles/ science news dating connections
lesbian dating service [url=http://loveepicentre.com/contact/]hampton va dating[/url] personals christian dating
single dating clubs [url=http://loveepicentre.com/faq/]nude school erotic dating error[/url] online dating hippie [url=http://loveepicentre.com/user/Victoria123/]Victoria123[/url] teens choice of dating partners

Anonymous said...

[url=http://my.moverapid.com/aloespirulina][img]http://my.moverapid.com/promo.gif[/img][/url]





[size=4][url=http://my.moverapid.com/aloespirulina][b][color=blue]Buy [/color][color=red]Spirulina Capsules[/color][color=blue] ONLINE - click here![/color][/b][/url][/size]

Anonymous said...

[url=http://my.moverapid.com/ayurslim][img]http://my.moverapid.com/promo.gif[/img][/url]





[size=4][url=http://my.moverapid.com/ayurslim][b][color=blue]Buy [/color][color=red]Ayur Slim Weight Regulator[/color][color=blue] ONLINE - click here![/color][/b][/url][/size]

Anonymous said...

[url=http://my.moverapid.com/antistressmassageoil][img]http://my.moverapid.com/promo.gif[/img][/url]





[size=4][url=http://my.moverapid.com/antistressmassageoil][b][color=blue]Buy [/color][color=red]Anti-Stress Massage Oil[/color][color=blue] ONLINE - click here![/color][/b][/url][/size]

Anonymous said...

[url=http://my.moverapid.com/dbc24][img]http://my.moverapid.com/promo.gif[/img][/url]





[size=4][url=http://my.moverapid.com/dbc24][b][color=blue]Buy [/color][color=red]DBC-24[/color][color=blue] ONLINE - click here![/color][/b][/url][/size]

Anonymous said...

Hey! I know this is kind of off-topic but I had to ask.
Does building a well-established website like yours
take a lot of work? I'm completely new to running a blog but I do write in my diary every day. I'd like to start
a blog so I can share my personal experience and feelings online.

Please let me know if you have any recommendations or tips for new aspiring blog owners.
Thankyou!

Also visit my web blog african american hair care

Anonymous said...

Asking questions are genuinely good thing
if you are not understanding anything fully, but this post presents nice understanding even.


Here is my blog post: forex trading system ()

Anonymous said...

What's up to all, because I am truly eager of reading this website's post to be updated regularly.
It includes good stuff.

Feel free to visit my website selling options ()

Anonymous said...

Wow, this piece of writing is good, my younger sister is analyzing these kinds
of things, therefore I am going to inform her.

Feel free to visit my page Binary Options bonuses (www.b2bviet.net)

Anonymous said...

You really make it seem so easy with your presentation but I find this matter to
be actually something that I think I would never understand.
It seems too complicated and extremely broad for me.
I'm looking forward for your next post, I will try to get the hang of it!

Have a look at my web site - trigger hair