PACHINKO and the WORLD
OF STOCKS

PART II

Imagine the ball being the value of the stock. Everytime a nail
is hit, the stock value  due to some random transactions  gets a kick, a percentage
change. It could be a rise or a fall  completely randomly. The average size of the
kick is called  in financial terms  volatility.
The
time between the rows of nails is just the time interval between these fluctuations.
The final position of the ball  the bin it's ending up in  corresponds to the stock's
value after all the fluctuations took place. If it went to the right the stock price
went up, if the ball ends up in a bin left to the center, this means the stock was falling.
There is no way
you can predict the final value of the stock. But trying out the random
walk many times you can determine the probability of the stock having
a specific value in the end.

Option Pricing is based on
Probabilities
 NOT on one specific outcome. 

And what if I have
bad luck?


There is no guarantee for
not losing money. Only, if you invest many times (many attempts in
the Pachinko game) you will break even  at the level of statistics.
Of course, if you think you know the evolution of the stock prices
better than the market prices suggest or  much more likely  if you
have some luck, you can make money.

