Finding a High Profit or High Probability Trade
Odds Online will now display the calculation results.
These results contained are explained below...
Expected P/L
This field gives you a trade's expected profit or loss based on the volatility shown in the VOLATILITY VALUE field, if held to expiration. Expected profit/loss is a probability weighted analysis of risk and reward. Suffice it to say that, generally speaking, the higher the number, the better. This value is given in option dollars. For example 0.20 is equal to $20 in real money per contract. Expected P/L is the amount that you should make or lose on average per contract, based on the risk, reward, and probability assuming that your volatility expectation is accurate.
Probability of Profit
This field provides you with a trade's probability of profit at expiration, based on the volatility shown in the VOLATILITY VALUE field.
Position Delta
This field provides you with a strategy's position delta. Position delta measures the expected price change of the entire option position for a $1 gain in the stock. For example, if the trade's position delta is 0.21, then if the stock moves up $1, the entire position should gain about 21 cents. If the position delta is -5.92, then if the stock moves up $1, the entire option position should lose about $5.92. Position Delta is often looked upon as a measure of bullishness or bearishness.
Net Debit/Net Credit
If the caption reads Net Debit, this field tells you exactly how much money will
be debited from your account for each position you implement. For instance, if you see Net Debit: 8, it means your
account will be debited $800 per position.
If the caption reads Net Credit, this field tells you exactly how much money will
be credited to your account for each position you implement. For instance, if you see Net Credit: 3, it means that your
account will be credited $300 per position.
It is important to note that this field does not provide risk and reward potential.
For a close approximation of risk and reward, click on the Profit/Loss Graph button.
Percent Allocation
ODDS Online is unique because it is the only computer program in the world that
provides portfolio allocation advice for option trades. The allocation advice provided is the optimal percentage of
current capital which should be invested in the trade in order to maximize growth,
based on the volatility shown in the VOLATILITY VALUE field. The formula used to make that calculation is
called the Kelly formula. ODDS Online is the only options program that is able to calculate the inputs required by the
Kelly formula and provide you with optimal allocation advice.
The Percent Allocation you see in this field is the percent of cash that you have
available in your account that you should risk on this trade. For instance, if you
have a $10,000 account with $2,000 currently invested, it means you have $8,000 available. If ODDS Online
calculates that the Percent Allocation is 25%, that means you should risk $2,000
on the trade. If you risk more than $2,000, you greatly increase your risk of ruin!
The Percent Allocation is not specific to YOU as a trader. Instead, it is specific to
the TRADE based on the probability of profit, and the trade's risk and reward characteristics.
Now that you have a trade to work with there are three graphical tools to
help you visually evaluate your trade. First we will look at Stock and
Volatility Charts.