See response above to sellindexvol66. The only way I can use your cautions is to actually experience them even if only with back testing. I did use data from 2005 through 2009. But I did not see the difficulties you describe. Could you narrow down the search space by telling me the underlying instrument, your trades and the series you traded. Otherwise I am unable to use your experience effectively.
Yes. But you can also use delta as a good proxy. I like PoT because it directly represents my chances of having to close the spread rather than let it expire worthless.
If you open a ThinkOrSwim paper account you can see the PoT reading alongside the delta on an option chain. My observation has been that the PoT of 20% is approximately a delta of 0.10.
Ok, I do see you use it as one of your criteria to enter a spread as well. I know Delta, but from your experience, what ratio seems to be about right of Delta to PoT?
For the volatility strategy I use (Fixed volatility per expiration date) a PoT of 20% is equivalent to a delta of approximately .10. However it is not symmetric with PUT and CALL sides and I don't know how close the relationship holds between PoT and delta in higher volatility regimes. P.S. I just used ThinkBack to view PoT in June 2010 when $VIX was about twice what it is now and there a difference of about 1% delta. October of 2008 when $VIX was 4 times what it is today, 20% PoT was equivalent to .07. It would seem that PoT takes into account implied volatility differently than delta.
I think the "Fixed volatility per expiration date" calculation for PoT might be just statistical/historical volatility. I also observed several instances where the delta was a little far from expected as compared with PoT. If my theory is correct you'd see more of a difference with puts than same-strike-distance calls because IV is generally skewed with puts. Delta uses IV. Since PoT is proprietary, who knows what goes into it.
Can you open a paper account without giving all your personal information? I searched around and seems not ?!?
Here is a pdf file discussion from the guy who invented the PoT for TOS: http://mediaserver.thinkorswim.com/transcripts/touching.pdf