Simple Option Math

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Options trading is rooted in mathematic. To determine

the statistics and probabilities, it can require complex
formulas to calculate. We let the platform do those
calculations.

Some however are simple, those we will do in our

heads or with a few punches on the calculator. Today
we will cover a few of those stats.
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The stats that we let the platform calculate include:

● Implied Volatility ● Black-Scholes

● IV Rank ● 1 year of IV Data
● Delta ● Based on IV Levels
● Percentage
● Expected Move
Calculation
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Stats that we will cover today:

Defined / Undefined Option Using the Percentage

(POP) of Delta Value
1/3rd Width of The Strikes Using the Credits
Potential and Realized Credits, BPR, and
Return On Capital Profits
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The probability of profit (POP) for both defined and

undefined risk is easily calculated once the delta of the
short strike has been determined.
Probability of Profit Calculation
Actual POP Strangles 100 - (delta of short strike)
Minimum POP Iron
100 - 2 * (delta of short strike)
Condors
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We will shoot for a minimum credit to width of strike ratio of around

⅓. Here is how delta will impact POP:

⅓ Width of Strikes
Delta of Short Strike
Probability of Profit
40 45%
30 50%
20 60%
10 Typically Too Low of Delta
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When we consider the ROC we look at it from the perspective

of potential to realized.

Potential ROC Credit or Max Profit divided by BPR

Realized ROC Realized Profit divided by BPR

Return on capital helps to add context to a trade as well as

capital usage decisions.
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Takeaways:

● Most option math is conveniently calculated for us

on our platforms.
● Remembering the simple formulas we covered
today, can ultimately assist in the trade decision
making process.
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Takeaways:

● Most option math is conveniently calculated for us

on our platforms.
● Remembering the simple formulas we covered
today, can ultimately assist in the trade decision
making process.