Calculating Option Probability

prasham

Active Member
#1
Hi,

Finished reading a book on Option Trading by Kirk Du Plesis. I wish to know how can we calculate the probability of any option to become "In The Money" from its current level.

For example say Nifty is trading at 9600 right now. What is the probability of 9800 call to become "In The Money" by the end of July expiry?

Regads
 

cinderblock

Well-Known Member
#2
1. Use India Vix
2. Calculate Monthly Volatility and Std. Dev
3. Use Normal Distribution to calculate probability.

Rough estimate for your prob should be <30% - A 200 point move is just outside 1 SD
 

travi

Well-Known Member
#3
There is another very simple method if you just want something from a glance.

The BS formula already encompasses the Ann. Vola, SD, you know IV, and other inputs.

What I do is just look at the delta, and it gives you a fair picture of % of probability of closing ITM.

So ATM with 0.5 delta is like 50% chance of closing ITM, while a 0.1 delta is 10% probability and so on.
 

prasham

Active Member
#4
1. Use India Vix
2. Calculate Monthly Volatility and Std. Dev
3. Use Normal Distribution to calculate probability.

Rough estimate for your prob should be <30% - A 200 point move is just outside 1 SD
Thanks for the suggestions but I am not aware of any of the above things. Mind explaining a bit. Sorry for the trouble.
 

prasham

Active Member
#6
Don't we have something like the highlighted in green colour in the below image???

Untitled.jpg
 
#9
Could you suggest an understandably comprehensive read for calculating ITM/OTM Probs, POP, POT?

Thank you !!!
 

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