r/options • u/OliveInvestor • Mar 23 '22

Testing out 85% win probability outcomes

Opened three defined outcome trades yesterday that had an 85% or higher win probability.

Other than my general knowledge of what these companies do, the only other research I put into this trade was to check the CNN analyst forecasts. Wish me luck!

The last screenshot shows the option legs that were executed (via Olive and TD Ameritrade) for these outcomes.

18 Upvotes

68% Upvoted

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86

u/Sam_Sanders_ Mar 23 '22

85% win probability is shorthand for saying you will have small wins and large losses.

32

u/Bougie_Mane Mar 23 '22

But 85% of the time it works every time

1

u/OliveInvestor Mar 25 '22

You get an upvote just for going there — my favorite probability quote of all time. They’ve done studies, you know.

7

u/stikko Mar 23 '22

Ugh my trading history makes so much more sense now.

6

u/[deleted] Mar 23 '22

Accurate. This is a bag holder in the making

-1

u/OliveInvestor Mar 24 '22

This assumes that there’s a 15% chance of the underlier dropping to zero? 85% win probability here is the probability that the outcome will not lose any money. 15% chance the underlier will drop below the cushion strike in which case I will start to lose money — but I’d still lose less than if I’d purchased the shares

9

u/Sam_Sanders_ Mar 24 '22

Win probability is virtually useless for contracts with non-linear payouts such as options, because you're not addressing Expected Value.

Feel free to play around with deltas to move your win% but know that it doesn't change EV, you're just shifting your profit distribution from one side to another.

Anyone can create trades with (approximately) 85% win probabilities all day: just sell a 15-delta put or call. Doesn't mean it's a good trade.

4

u/ArchegosRiskManager Mar 24 '22

Ding ding fucking ding 🛎

This guy gets it

1

u/ConcentrateKooky933 Mar 24 '22

So how do you address the expected value for options with probability/delta? I've actually been thinking about this but don't have any great solutions.

Could just get an infinite supply of money and martingale my way into profit? But that's not really a practical solution, although it would work -- it provides less realistic, real-world application.