tasty trade POP

The symmetry of Brownian motton, something like which is entailed by an efficient market hypothesis, means that once an underlying reaches a price point, it has probability of being above or below there later. Solving this with algebra, we get what is known as the reflec?on principle: the probability of a touch is twice the probability of profit. This means that by managing winners we can almost double our probability of profit. Of course, that would require taking winners off the mo- ment they made a penny and is not a good plan, but it shows the scale on which managing winners can supplement your probability of profit. Conversely, aYempts to manage losers will hurt your probability of profit, since some of those losers you closed out were going to turn around

It is also worth noting that the delta of a naked op?on is very close to it’s probability of profit, and many traders use it as a proxy

pop = (width of the strikes – credit received) / width of the strikes