Do you have a lot of positions on and want easy access to know the possibility that a particular one will expire in-the-money without having to do anything but simple math?
Dr. Data, aka Mike Rechenthin, the leader of our research team, posed the question of the probabilities of KO closing above $44 at expiration. He presented a chart of KO with the $44 level noted. Mike then noted that the assumption is that stocks follow a normal distribution curve. Doc Data then explained how a one standard deviation move accounts for 68% of the moves and two standard deviations account for 95% of occurrences.
A screenshot of a spreadsheet on KO was displayed. The screenshot included the formulas used to calculate a ball-park of the probability of closing below/above the target price, the current price and implied volatility (IV). The dough platform can also calculate the probabilities.
More information can be seen in the segment titled “Four Reasons Delta is Awesome”. To see another method of estimating probabilities based on delta, watch the Best Practices segment on January 11th, 2016. For more spreadsheet joy, see the Skinny on Options Data Science, , “Calculating Stock Expected Moves” from April 29th, 2015.
Watch this segment of “Options Jive” with Tony Battista, Pete Mulmat and Mike Rechenthin (Dr. Data) from the research team for the valuable takeaways and to learn how to use a spreadsheet to calculate the possibilities of a position expiring above or below a certain level.
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