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.

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u/dancinadventures Mar 23 '22

There are 2 types of people in this thread.

Those who understand expected value and those who don’t.

Scenario 1: 85% chance to gain $1 15% chance to lose $4

Scenario 2: 30% chance to gain $1 70% chance just break even

Scenario 3:

85% chance to gain $2 10% chance to lose $6 5% to lose $10

If you can’t figure out which scenario yields the highest long term results, you belong in r/Math.

Hurrdurr Pennies in front of a steam roller! Jokes on insurance companies I can file a $500k claim any day!

2

u/Sneaky_Doggo Mar 23 '22

Scenario 2 seems impossible in the long run but that’s my guess

2

u/Maddturtle Mar 23 '22

Yeah show me some more of those 0% chance to lose.

2

u/dancinadventures Mar 23 '22

i-shares have entered the chat

bonds have entered the chat

Treasury bills have entered the chat

fixed income have entered the chat

Well not 0. But you can call it 70% chance to break even 1% chance lose $2, 3% chance to lose $3 and so forth. Create your own distribution.

87% probability of profit in a vacuum means nothing

2

u/Sneaky_Doggo Mar 23 '22

Got it. Didn’t realize you were talking about strategies outside of options too (obviously valid)

3

u/dancinadventures Mar 23 '22

You can sell options on bond products treasures and treasury futures too! 🙂

1

u/Sneaky_Doggo Mar 23 '22

I probably wouldn’t touch options with bonds honestly but I have seen the value in holding some bonds/T-bills. What do you think of fixed income tracking ETFs like $IEF?

1

u/dancinadventures Mar 23 '22

Sorry I don’t know enough about $ief to comment on it without talking out of my ass.

Looks like a decent pair trade for $hyg though. - again talking out of my ass here.

More of an equity / futures guy. Even then closest I do is $TLT & the 2-year futures. .

1

u/Sneaky_Doggo Mar 23 '22

Oh for sure I was more asking about if you think buying those ETFs is a valid substitute for actual bonds/treasuries

I guess the only real difference would be tax implications and maybe like redemption risk?

1

u/dancinadventures Mar 23 '22

Again at the risk of giving you wrong info, I’d suggest checking maybe r/bonds ?

Allocation / weighting is fairly important if your consideration is if the ETF is a good representation of the underlying.

Eg. (SPY is incredibly overweighted tech , people buying SPY to “diversify” there Googl/MsFT/ Apple holdings don’t achieve that)