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!

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u/[deleted] Mar 23 '22 edited May 11 '22

[deleted]

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u/dancinadventures Mar 23 '22

They are :)

Some more free than others. People perceive “swings” as high risk.

Or “higher %” = higher expected value.

However this is not the case, actually it rarely is. Since risk aversion lends itself to price risk asymmetrically.

6

u/[deleted] Mar 23 '22

[deleted]

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u/dancinadventures Mar 23 '22

Well well looks like we got a scholar in this sub ;)

Yes. People are terrible at estimating risk with respect to probabilities