Lesson Overview

Option Probability Curve

We are all visual learns and in this video I'll show you a simple but powerful indicator to help you master the option probabilities with the "Probability Curve".

This very cool tool helps you project where a stock will or will not go within a give confidence range is truly eye-opening. And as traders we can use this data to build option strategies to profit from these range bound markets.

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  • Correct everything that’s calculated on the graph is always “at that moment” so if IV increases or the stock moves then everything is re-calculated on the fly.

  • RKK

    Excellent Quality Instruction as you also seem to enjoy what you are teaching. Using the Apple example provided, if an option position is taken (i.e. sell a call above the 68% cone), isn’t the probability of success approx 84%? This would equate to the 50% of the low side of the normal distribution plus the 34% representing the cone?

    • Yes depending on where the strike price and break-even is you’d have an 84% chance of success.

    • Nisheeth

      Yep, for short call that’s at a strike price 1SD above mean your probability of success is ~84% .

      Probability that underlying stock/ETF remains within +/- 1SD is 68%. This can be used for iron condor / strangle strategy.

  • Marcony

    Hi Kirk,

    Excellent video, unfortunately i don’t use ToS, currently trading with OptionsHouse. I’m curious to know, in your opinion how is this indicator different than Bollinger Bands? Thanks!

    • Different in many ways because it projects expected ranges. Bollinger games expand and contract.

    • Kingfishers

      OH’s TradeLab is great. It is getting more similar to TOS. I love their Analyze Snapshot and Spectral Analysis which can help with analyzing your trades and future trades! I’m using both tradeLAB and TOS and TDA is eating me alive with their high commissions and fees! I’m keeping my large account at OH!

  • Chuck Anderson

    Wow another great feature of TOS, would not have known about otherwise (Kirk, you just have so many gems scattered around, it is as much fun looking for them as it is productive when I can put one to use).. This can be used not only for deciding how/where to enter a trade either. You can place a trade then come back to the chart in 2 weeks e.g. and see if the cone(s) have shifted (widened of narrowed), ponder whether your trade will stay OTM, or if you need to make an adjustment, or look again in a week, etc.

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