Probability of Profit (POP) Option Trading

Saturday, November 15, 2014 EST
MTR Option Scanner for Covered Calls, Naked Puts, Iron Condors, and Credit Spreads use Probability of Profit (POA) and the flip side is Probability of Assignment (POA).  Both of statistics are based on using the Options Delta.


"The (absolute value of) Delta is close to, but not identical with, the percent moneyness of an option, i.e., the implied probability that the option will expire in-the-money (if the market moves under Brownian motion in the risk-neutral measure).[5] For this reason some option traders use the absolute value of delta as an approximation for percent moneyness. For example, if an out-of-the-money call option has a delta of 0.15, the trader might estimate that the option has approximately a 15% chance of expiring in-the-money. Similarly, if a put contract has a delta of -0.25, the trader might expect the option to have a 25% probability of expiring in-the-money."

The POP or POA can be set in the scanner allowing you to begin an option search by looking for options that fit the POP range vs. looking at one stock at a time and reviewing the POP. This opens up more possible trade candidates. 

The screen shot below shows Probability of Assignment (POA) meaning "show options where the POA is between 5 and 20%" In other words meaning the chance of being assigned is 20% or less, in other words the Probability of Profit (POA) is 80% or better.

Probability of Profit

After running a search you are presenting with up to 5000 results (depending upon your search) for Covered Calls, Naked Puts, Iron Condors, and Credit Spreads.  You can filter and sort by any column on the grid.

Probability of Profit

Seasonal Returns Charts

Saturday, November 1, 2014 EST
PRIA Group released a new feature "Seasonal Returns Charts" that will help provide additional insight into monthly returns of the market.  

The Seasonal Return chart (See Image Below) can provide insight if a particular investment such as stocks, bonds, or commodities may turn a profit for a given month (based on historical monthly returns).

The Blue Bars on the chart shows the average return for a given month.

The Orange Line shows the probability of profit, which really means “how often based on historical data did investing at the start of a month show a profit at the end of a month.”