Wow -- how many of you need a lesson in discerning between a 1-tail and a 2-tail test?? Pretty sad. Including Mr Gutless "Desultorio", who still lacks the testes to openly post.... ((Perhaps laying off the steroids might brighten your disposition while simultaneously giving your character a *bit* of backbone? Maybe not. This is hardly your first punt of basic stuff.)) For those who might court disaster by following any of what's transpired above: • There is no direct mathematical relationship between delta and a P(ITM) finish, however, • with a couple of not-too-wild simplifying assumptions, a useful parallel can be drawn. (There is at least one exposition on YouTube -- it might be MIT, but I can't say for sure.) • Using delta as a stand-in for P(ITM) lets us use it as a single side to a two-sided distribution of market movement. • If one were interested in a "10-delta" iron condor -- where the short strikes were chosen such that each side showed a |0.10| delta, that leaves the remaining 80% of expiration outcomes as your finish area -- you've lopped 10% off the top, and 10% off the bottom. • Howsomeever! If a close approach brings fright (and a decision rule requires a response), then one must figure in a policy on P(touch) as well. P(touch) is quite complicated compared to the BSM probability-of-finish, but a consistently close approximation to P(touch) can be had by multiplying P(ITM) by two. This brings the range-of-trade-response in from both sides though, from ±40% out, to ±30% out. (Because again, your unacceptable range doubled, from the P(ITM) of 10% on each side, to the P(touch) 20% on each side.) If you think that iron condors are automatically set-it-and-forget-it option set-ups, or you listen to some drooling fool who thinks that themselves, you will have Mr. Market mercilessly raping your ass before a year is out. That's a promise. If you'd like to learn more, search on YouTube for "Choosing Confidence Intervals" or something close to that. Have fun. Be safe.
Any Choosing Confidence Intervals videos that you'd recommend? There's tons out there... Also I'd agree .. going off P(ITM) or P(OTM) the market will bend you over ... Not working so well for my paper account
omfg. I think his condition is more serious than we original thought. Mind-blowing wrong and toxic math. He says you can't use delta as a prob of exp ITM... then proceeds to use it. Got the prob of touch wrong and then quotes my earlier post (prob of exp*2) Then he went full-retard with what followed this: • Howsomeever!
I have no idea, but yeah: I would certainly view them all, as if my account depended on it. Cuz, y'know.....
Dipshit is suggesting modeling probs as if the thing is an American barrier; the double no touch (w.r.t. probabilities). The IC is analogous to a discrete European barrier. Survival probability does not apply. The implication is that you would apply vanna-volga. You cannot. He's wrong. Comically wrong. Have fun.
So on a side note ... What good are prob ITM and OTM if no one seems to care what they say or mean anything at the time of purchase
Because people that sell these garbage ICs seem to consider it the equivalent of the Golden Tablets. I suppose you can ignore the touch/terminal probs if you're shorting 10D wing-strikes at a better than 9/1 risk, right? You can simply stress D1 and D7 risk using weeklies. Price the ATM vertical to arrive at D1 risk of spot at the short strike. Say you're in a GOOGL 1175/1200/1350/1375 short IC. Price the 1250/1275 put vertical to arrive at your risk at the short strike. Assumes flat vol/stickiness* *You'll lose on stickiness on the upside (call vert) but gain from a drop in strip vol. You gain on stickiness on the downside (put vert) but lose from a rise in strip vols. IOW, risk to curvature vs. a risk to AIV/mkt vol.
I'm not sure what DD you saw trading the SPY for IC's, and without those DD numbers over an at least two iterations (60 trades, as I view an iteration with that periodicity as 30 trades), it's hard to be able to say if you saw something that is statistically normal over several iterations; or if it's anything you did "wrong". One of the toughest things for traders to learn, is you can do everything correct ... and lost on a couple of bad "hands" as it were. Doesn't mean you did anything incorrect. Just statistically normal DD's. So that could be the case. I'm not sure, since I don't know the overall stats you are seeing. As some have commented, if ones have to use Equities for the Indices (the SPX is much better for it's 'juice') ... due to something like Regulatory or Contractural obligations (something that affects me, as a matter of fact) or for other reasons ... I've found it's better to use the QQQ, as you can (at least at the moment, this can always change) get a tad more juice out of the Q's. Conversely, if want to use Futures, SPX is better than NDX from a liquidity standpoint. As well, I'm not sure if you are applying any sort of management method once the trade is on (exit at 10% winners for IC scalps, X days to DTE, etc), which can improve overall Probabilities of Profit. But even then, statistics state that you are going to have to face some pain at some point. Because as someone stated earlier, the nature of IC's is that you are marrying yourself to the neutral assumption. Without the information regarding the stats you are seeing through iterations? It's somewhat difficult to answer at all.