FXI

What is your definition of expectancy? My definition of probability which I have tied to delta has a negative or inverse of (1-p).

Do you mean expectancy as a premium or discount beyond the probable payout?An edge?
 
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Expectancy would be

probability of short strike expiring ITM X max profit

minus

probability of long strike expiring OTM X max loss

(with a correction for expiring in between short and long strike)
 
max profit/loss is simply the absolute value of the premiums right. If you express max loss as a negative then subtract it, thats a double negative.
 
xandman said:
max profit/loss is simply the absolute value of the premiums right. If you express max loss as a negative then subtract it, thats a double negative.
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I'm talking about expectancy. We seek positive expectancy in spread trades -- i.e., over the long haul we expect our trades to net out at a profit. The opposite of positive expectancy is negative expectancy. How would your method ever show a negative expectancy?

In the equation I provided, "max loss" is a positive number. We multiply it by probability of occurrence and subtract the resulting positive number from the one we obtained for max profit. Alternatively, put the sign on the P/L values, multiply each by its probability, and add up all the signed products.
 
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