prvtrader 12:49 pm on Thursday, January 21, 2016

To calculate the probability of…

To calculate the probability of winning of any vertical spread use the following:
Prob Win% = Max Loss per position / Strike Difference.
So Jeff spread at 1990/2015 is a 25 pt. spread his max loss = 2500 – 125 = 2375.
His prob of Win = 2375/25 = 95%

thomberg1201 1:39 pm on Thursday, January 21, 2016

Thank you
GTS 6:22 pm on Thursday, January 21, 2016

I’m afraid this assumes he will take a max loss on all nonperforming trades…? Since he does not, his win rate is actually lower, and expectancy is well above 0.

thanks.

Josh

425.908.9370

GoTradeSignals
- prvtrader 6:27 am on Friday, January 22, 2016
  
  Josh, it has nothing to do with where he’ll get out on a losing position. What the Max Loss/ Pt Spread x 100 shows is that the best case scenario is if he waits for a max loss. If he takes a lower loss, his prob of success is lower.
  for example if he gets out at 1000 / 2500 = 40% it could go lower still if he gets out earlier; 600 / 2500 = 25% etc. What sense would it make executing a High Risk – Low Reward – High Probability trade and making it into a High Risk – Low Reward – Low Probability of winning trade.
  Basically, these types of trades rely on Theta to make the money; if you come out too early because you don’t want to get a big loss, then you miss in the possibility of the market reversing and making a trade a winner. I know, since it has happened to me.

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