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Probabilistic Strike Selection

Best Practices

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Premium sellers who want to know which strikes they should sell based upon their risk tolerance and the probability of success need to watch this segment. It's a must watch for premium sellers in general and specifically, for those not totally clear on the importance of standard deviation, normal distributions and implied volatility.

Tom and Tony began things with a brief explanation of standard deviation and how we use it in options trading, and especially in strike selection. There is a brief discussion of the normal distribution curve and different multiples of 1 standard deviation.

Calculating one standard deviation for a year is explained. Using the basic equation it is then explained how to calculate for shorter time periods. It is then applied to strike selection. The details of different standard deviations are provided and a screen-shot of the Dough platform shows how it is displayed visually..

Watch this segment of “Best Practices” with Tom Sosnoff and Tony Battista for the takeaways and how probabilities and your risk tolerance should play into strike selection.

The traders in this segment are using features of Dough, our trading platform.
Click here to learn more

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