Helium models with Green “Future Uncertainty” buttons feature a probabilistic description of uncertainty about the future price of an asset.
Updated daily, the Future Uncertainty graph compares Helium’s projected future price distribution to the market’s expected price distribution (as reflected in options prices).
The x-axis represents potential future price in $. The y-axis represents estimates of the likelihood of the price ending up at each potential price, where higher values mean more likely, and lower values less likely.
Discrepancies between Helium’s estimate, and the market’s current/historical estimate could indicate potential mis-pricings and an opportunity for profit.
However, always keep in mind that Helium’s expected likelihood is just an estimate. Given that all models are wrong, it’s prudent to not interpret the models too literally.
In reality, there is no such thing as an “expected future price distribution.” Contrary to popular belief, there’s not even such a thing as the probability of a future event. Since the map is not the territory, any expected distribution is merely a relative expression of uncertainty. Keep that in mind.
See how the market and Helium uncertainty changes over time by clicking on the “Term Structure” tab. Discrepancies between uncertainty over time could allow for profitable trades by buying volatility at one point in time and selling volatility at another point in time.
By comparing the difference between the blue line (Helium uncertainty) to the orange line (market uncertainty) we can see where uncertainty might be relatively mis-priced over time. By comparing the orange line to the green line (historical market uncertainty from past 160 days projected into the future) we can potentially make trades that profit from mean reversion.
For Helium’s long calendar spread trades, it could make sense to sell the expensive near-term options and buy the less expensive longer-term options.