Estimate the Probability of Trades being ITM at Expiration

In this video, I'm going to show you how to estimate the probability of trades being in the money at expiration. Now, this is a really cool way again that you can use bots to do all of the calculations for you, completely automated before you start sending your trades to your broker.

So in this demo scanner automation, we're going to have the bot for us to loop through a couple of different ticker symbols looking for potential trading opportunities.

In this case, we're going to start off by looping through the symbols SPY, FXI, GLD, and EFA. We're going to be looking for a potential put credit spread opportunity for each of these potential symbols.

First thing that we're going to do is we're going to actually build out our open position action. Now, I like to do this first when I'm building out filters like this for probabilities because I first want to tell the bot what position I ultimately want to get into. And in this case, I want to get into a short credit put spread in one of these underlying tickers.

So I'll connect the ticker symbol field to whatever symbol it's currently looping through using custom inputs. Now, I want to select the expiration days and choose my short strike and long strike legs of my put spread. I'll leave these defaults on here now for a 30 delta and a ten delta long leg and just use one contract.

Again, you can change up and modify any of these fields to fit your personal strategy. Once I'm good to go, I simply hit save.

So at this point, I have my new open position action, but I want to precede this with a decision that checks for the probability of the trade being in the money at expiration. So I simply precede this with a decision and then I add a new decision.

Now we're going to go down here to the opportunity section for our decision recipes. Remember, opportunities are just that potential trading opportunities that the bot is evaluating or looking at. And in this case, I can go down here to the recipe here for the opportunities chance of profit, and I can modify some of these fields.

So, I can go to the opportunities chance of being in the money and take a look and see if the chance of being in the money is more than a certain percentage by expiration.

Now, I have to first select the opportunity or tell the bot what position or potential trading opportunity to look at. And because I've already built out my open position action earlier in the video, I just simply want to reuse that same open position action.

The bots are smart enough to recognize that you recently looked at this potential trade or start to build out a trading opportunity for that one. So we're just going to confirm that it's the same one we want to use and move on to the next field.

Now, we can look at a couple different probability metrics. We can look at the chance of position being profitable, the chance of it being in the money, or even the chance of the position being at max loss by expiration. Again, in our case, we just want to calculate the chance of the position being in the money by expiration.

We're going to select in the money, and then we're going to select more than 60%. Again, this is just a test to see how the bots would start to make these calculations, and again, you can use whatever variable or number here works best for your particular strategy.

So in this case, we want to check and see if the probability of the bot being in the money by expiration is more than 60%. And if it is in the money by more than 60% on than chances. More than 60%. And then we don't want to enter the trade. So we're going to go here and save this and we're going to add this down the no path.

So what we've done here is we first now allow the bot to loop through our existing ticker symbols. Check each symbol, and pull the potential trading opportunity and if the chance of the position being in the money is more than 60%, which would be a yes answer, then we want the bot to simply end the automation and not enter the position.

Only if the chance of being in the money is less than 60%, where the bot would go down the no path, do we want the bot to open the position and send the orders to our broker. We can actually test this logic right here inside of our demo bot.

We can start the automation, and you can see, we can check all of the metrics right here inside of this test. So in this test, first ran and first loop through the symbol SPY because that's the first one that we listed in our loop. It checked to see if the short put spreads chance of being in the money was more than 60%. And the answer to that question was no.

We can get more details on this by just simply clicking on the decision and see exactly what data was used and what numbers the bot came up with to make this decision. Here we can see that the short put spread chance of being in the money at expiration is 34.81%. So definitely less than our 60% threshold that we set. So the position continued down the no path and it started to open the trade.

If we go over to FXI, we see the same thing. The same thing for GLD, and again the same thing for EFA. And we can modify any of these fields here and check our logic inside of our bots.

Let's go here and make a change to this and say that we want the chance of being in the money to be less than 15%. So go here and make us change this, and then retest our automation.

We'll test our automation, and now you can see because we made a change, that now SPY does continue down the yes path which would ultimately end because there's no open position action. If we go to our other symbols here, you can see the same thing happens. That's because we modified and changed the variable that the bot is using to make these calculations.

You can see, in this case, the chance of the EVA trade being in the money by expiration is 35.39% which is greater than our threshold, so we don't want the bot to enter a new position. So this is how you estimate the probability of trades being in the money at expiration.

It's a really cool, unique way to use calculations and automations to help you make faster, more accurate decisions with your trades.