The Skinny on Options: Abstract Applications - January 25, 2021 - BLUE
One of the core principles of all of statistics is the regression. As a way of establishing a cause and effect relationship between relevant variables, regressionary analysis can be used in a myriad of ways, and interestingly, the output of a regression can carry a very special distinction - BLUE. BLUE stands for Best Linear Unbiased Estimator, and it belongs to the regressionary model that produces the least discrepancy between the error terms and the expected values.
Well as traders who base their positions on probabilistic outcomes and expected values, we are effectively trying to minimize our own “error terms” each and every day inside of our portfolios. And as our research has shown us over and over and over again, the best way to do that is through position sizing and number of occurrences.