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Visualizing Probabilities

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Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

By dealing with options, we enter into the world of dynamic probabilities.

We can use the following metrics to gauge different measures of probability:

  • Probability of Profit
  • Delta
  • Probability Cones

The probability of profit is found on the tastyworks platform and tells you the probability that your trade will be at least $0.01 profitable by expiration.

The delta of an option tells you the probability of that option expiring in the money.

Finally, probability cones allow us to visualize where the one standard deviation move is for a particular underlying. Wherever the cone ends is the one standard deviation move for that stock in that particular timeframe.

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