Now how do I exploit this?

[aaron]

That helps a lot. It still depends on the details of your filter, but I would think this could give some powerful tick signals during the P_n+2 to P_n+3 period, even if it doesn't meet the requirements for a straight directional trade.



What you'd like to do is buy an option that one of your predicted P_3's will be hit within, say, the next fifteen minutes. The details depend on your filter. Obviously you can't do this both due to the short-time and granular strikes you would need. But you compute the delta of this position. Again depending on the detail of your filter, this could give you values near +1 or -1 at some points, in other words, points at which the market is much more likely to tick in one direction than the other, if one of your points is going to be hit.

[qazwsxedc]

Thanks aaron, that is helpful. I hadn't thought of it as a barrier option pricing problem because of the short timespans involved. My bad.



After isolating the points of maximum delta you mentioned I then have a separate problem with queue position management. Oh well, that's what weekends are for.