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Market Measures

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The Tradeoff of Defining Risk

Market Measures

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

We now have a back of the envelope method of calculating the range of possible probability of profit for a strategy that involves a short put and call strike i.e. a strangle or an iron condor.

The formula is as follows:

  • Top of the range = 100 minus [delta of the short strike]
  • Bottom of the range = 100 minus 2 * [delta of the short strike]

The actual probability of profit of the strangle or iron condor no matter the long wings will be between this range.

Tune in as Tom, Tony and Anton interpret this information.

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