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The Skinny on Options: Abstract Applications

Probability Clouds

The Skinny on Options: Abstract Applications

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

As traders, much of what we do is probabilistic in nature. Well interestingly, probabilities also govern the relationship between protons, neutrons, electrons, and nuclei, at the atomic level. Specifically, the location of an electron can never be known with certainty, so “probability clouds” are used to help gauge the likelihood that an electron might be in a given location. Further, the denser the cloud, the higher the probability that an electron resides in a given location.

In trading, we observe the same relationship between expected moves and actual moves.

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