Ryan & Beef

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Option Basics - Probabilities Explained

Ryan & Beef

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
Probabilities are an important part of our trading approach


When setting up our trades, it's important to pay attention to the expectations of the market and then find a balance between the risk and reward of our trade.

We can use the probabilities associated with options at various strikes to gain a sense of the likelihood of the underlying reaching a certain price by the option's expiration date.

While the platform shows us the probability of a strike being in or out of the money at expiration, it's important to understand where these values come from.

On today's show Beef and I explain how we can use implied volatility to derive the probability of a stock price reaching a certain level over a specific period of time.

We also use the tastyworks platform to illustrate and explain how we can use these probabilities as a gauge for what the market expects and then find a balance between the probabilities, option prices, and our assumptions, when setting up our trade.


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