Lesson Overview

Optimal Probability Level

Today we want to answer a question we get often which is "Is there an optimal probability level to sell options at?" Now remember that you can target any probability you want; 60%, 75%, 90% whatever. It's all based on what strikes you select.

That said there is an optimal probability level that we'll often use to sell options because of the highest ratio of return to capital usage. And honestly with all this talk of statistics and probability you shouldn't be surprised as to where this lands.

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  • Hey Jim, so when I talk about exiting early I mean taking profits early and not losses. This podcast show will help on the subject as well and I highly suggest listening to it this weekend: https://optionalpha.com/show-014-why-stop-loss-could-actually-be-creating-more-losing-trades-16985.html IF for some reason you never exited early or had a stop-loss then you would still make money long-term because IV still overstates the expected move and long-term option are always more expensive than they should be.

  • tadikonda nagakalyan

    excellent explanation. fabulous.

  • Just depends on the trade we are in and how high IV is really – generally speaking I do (nearly) everything around the 70% chance of success.

  • Austin

    What is the correct percentage for 1 standard deviation? 68% or 85% as stated in this video?

    • 1 standard deviation is 68% – in the video when I talk about 85% prob of OTM, that is for each leg so that if you did each leg at 85% prob of OTM then your overall success rate is approx 68%.

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