I believe I should of stated it as a 30 delta has a 30% chance of being ITM at expiration, a 20 delta 20%, a 50 delta 50%, etc.

Its part of the option pricing within the options chain.

The only place I know of a metric close to what you are referring to is TastyTrades POP and P50 variables, but those are only calculated during entry.


POP is Probability of Profit (one cent)
P50 is Probability of 50%


So are you buying or selling options?

In his example he writes that he purchases a call option. In another comment he states that he trades stock options.

Best regards, Myrrdin

This is strategy exclusive, and if you want to dive deep into it, you not only have to figure out what your SL is but also Tgt. And if possible with your own option pricing model.

From what you've posted so far it seems you not only lack SL calculation but also tgt. With options you need to figure out what exactly you want to trade, some trade delta, some trade volatility, some don't even open greeks and do only in-out trade in 20 min solely based on underlying movement.

For example, if you are latter category trader where you are reliant on underlying movement, decide SL according to that, best case scenarios with SD calculations, which is more or less basic risk proxy.

Don't make it too complicated with all the equations, its never a "perfect" thing. Experienced option traders would even tell you that the conventional options pricing models like BS are not even that efficient. Because we lack one key thing, ability to predict exact "volatility", which is effected by too many variables to count, at least on retail end.

If you need, research more into hedging using Greeks on directional trades rather than perfecting or predicting "how much drop is okay till its too much to bounce back", fact of the matter is, there is really no such a thing in options, also why many people like futures.

That's the confusing part. Usually if you are just buying an option you are looking for a directional move, which would be determined by your TA.

I seldom buy options, I sell options and base my stop (if used) on my R/R and backtesting results. When I do buy, I assume my max loss will be the debit paid.

I understand that is the way to calculate the stop loss (you are suggesting) and I understand it's up to me to be able to make the right read/prediction. But, what I'm asking is slightly different. I'm asking if there is a database, calculation, application that will analyze my option bought and calculate/track the probability of an investment return based on all the possible outcomes. ie. (you have x days left and if it goes up y you will make money, etc) I know its complicated and overkill, but I do have a use case for the data that will help me with analysis of when to sell my options.

Sorry for the confusion. I buy options and trade/sell them before they expire. Usually within a few days. Quick in and out.

It does exist, its just that one of the variables, IV is not something you can just calculate as its "expected forward" movement. One of the reasons BS is used by everyone is due to it being one of the only popular pricing models that has only one such an input, others are measurable like time.

So, to be more precise, if you really want to get around and develop some kind of AI to "Predict option prices", your first step should be estimating Implied volatility. Note that I again use word estimate, so even if you managed to re-invented the wheel, it will be still just an estimate.

If you do decide and make any progress in that direction, I would love to hear it.

IV is a result of BSM, not an input. Its the one variable you don't have.

So you agree you can't calculate directional move with option pricing, but you still think there is a way to determine the of a direction move and the length of the move to determine its probability? Then your first step is to estimate IV?

Do you have any data or references to your view on this being available or is this a hunch?

Algo's that read tweets and news have been trying to predict for years, No individual will accomplish this before one of the big trading firms with funding for teams of mathematicians and data analysts.

Do tell how to calculate IV when price of option is not known.