Trade Options with a 90% Probability of Success - Nike High Heel

Technically, these trades indeed have a high probability of success, i air jordan fusion.e., if you placed a trade with the same parameters every month of the year, you should see about 10 or 11 trades per year be successful and one or two be losers.

And the longer you traded in this way, the more likely your results would conform to these averages nike air max 90.The underlying probability calculation assumes that the stock price movements are random events, like throwing dice.

Of course, stock price movements are not purely random, but are affected by news, rumors, crowd psychology and many more factors Nike Air Foamposites. But it isnt a bad approximation for the reality, especially when averaged over many stocks and over long periods of time.

The essence of the problem derives from the old financial adage, theres no free lunch nike dunk mid. If you were to establish trades with these probabilities, the returns will be rather small, of the order of 7% to 10%.

But the losses would be huge, of the order of 90% to 100%. The bottom line is that the one or two losses each year would be large enough to wipe out all of the gains for the year. Thus, there is only a small probability of a losing trade, but when it happens, it will be a devastating loss.Some traders will readily acknowledge that these high probability trades dont make sense, and will sell the idea of so called low risk trades, where the potential loss is small, hence the label of low risk. These trades are simply the mirror image of the high probability trade. The low risk trade is characterized by a huge potential gain, of the order of 200% or more, but there is a very small probability of that successful outcome. In this case, one would lose a small amount on the trade 10 or 11 months out of the year and then have 1 or 2 large gains. The problem is that the large gains would not compensate for the large number of small losses.In either case, the outcome is the same, a small net loss, especially after commissions and other costs of trading. So is options trading inherently a losing game No, not necessarily, there are many examples of successful, long term options traders. They succeed by paying attention to two critical factors: 1) keeping ones ratio of winning trades to losing trades as high as possible, and 2) minimizing the losses on the inevitable losing trades.