ODDS®: Options and Derivatives Decision Support

Whether you realize it or not, any investment or any speculation, risk and reward has embedded in it a probability factor. That means every method for analyzing options requires that you calculate the odds.

Most methods of analyzing options use a standard formula based on a theoretical model. That model goes by a lot of fancy names: Gaussian distribution, Geometric Brownian Motion, Lognormal distribution, etc. You know it as the bell curve. Below is a Monte Carlo simulation of the theoretical distribution that is assumed in nearly every major options pricing model.

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We believe that the real world isn’t perfect, that it behaves differently than any elaborate equation can ever predict. For instance, the chart below shows the the theoretical bell (white line) curve compared to the actual distribution (vertical columns) of the S&P 500 since 1952 — when weekend trading ended. You can see that the probability distribution of the market and the bell curve are not that different, which is why people continue to use the theoretical model in their pricing formulas.

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What we do is different. We calculate probability using real data, real information, and we measure it. With today’s technology, it’s surprisingly simple. We built our own mini-supercomputer cluster and special software that allows us to crunch numbers in previously unimaginable ways. It gives us an unbiased assessment of probability that has much higher accuracy than some over-optimized model. We have an edge: true probabilities.

By the way, the charts above were created in Excel, so it’s clear you don’t need our software to make these calculations. We provide the methodology in our course, The Casino Secret to Profitable Options Trading. Setting up the spreadsheet (or some other math program) will require programming on your part. Plus there is a lot of manual effort involved updating the data every day. But it can be done.

What ODDS OptionApps does is provide you with this information, and so much more, all at the push of a button, anywhere, anytime, all at a surprisingly affordable price.

Just enter the ticker symbol, and select the amount of data you want to analyze (our database for individual stocks and volatility goes back to January 2, 1998), and you can see the true probabilities, and determine your edge. The chart below shows a sample output that took about 6 seconds to produce.

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Once you have the actual probability, you can balance it with risk and reward to come up with a true and accurate value of the options. It gives you an edge. ODDS allows you to stop being a gambler. Be The House!