Odds calculation check

[Justrade]

Ok, I’m selling a credit spread with five points between the calls. The premium I get is 1. Thus I am risking five to get a max of six in return if I win. So, my odds are 5 to 6, right?

On a credit spread the max reward (profit) is the credit you received when you sold your spread
in your case 1$
On the credit spread the max risk (loss) is the width of the spread less the credit you received
in your case (5-1)=4$

However, this isn't your odds.... this is just your max risk vs your max loss

 

[emulimu]

Ok, I’m selling a credit spread with five points between the calls. The premium I get is 1. Thus I am risking five to get a max of six in return if I win. So, my odds are 5 to 6, right?

Let's try this way. A stock can
1. Go up a lot
2. Go up a little
3. Stay the same
4. Go down a little
5. Go down a lot

If you put on an OTM Call credit spread, only if the stock goes up a lot will you lose. Therefore, you have 80% chance of winning. That's how I look at it.
If you use a little technical analysis and put the credit spread above a major resistance, the chances of breaching the resistance and falling back in the channel are 50-50. So, in the remaining 20% you have 10% chance of winning. Overall you can say, you have 90% chance of winning if you write a credit spread.

 

[taowave]

Keep it simple and stick to the math..

If you want to ballpark probability,look at the Deltas of the strikes and go from there...

Play around with IV and see how it changes your likelyhood/odds

 

[dcwriter2]

Let's try this way. A stock can
1. Go up a lot
2. Go up a little
3. Stay the same
4. Go down a little
5. Go down a lot

If you put on an OTM Call credit spread, only if the stock goes up a lot will you lose. Therefore, you have 80% chance of winning. That's how I look at it.
If you use a little technical analysis and put the credit spread above a major resistance, the chances of breaching the resistance and falling back in the channel are 50-50. So, in the remaining 20% you have 10% chance of winning. Overall you can say, you have 90% chance of winning if you write a credit spread.

Thus my odds are 4:5, right? For some reason when I try Kelly calculators online, these dont compute.

 

[taowave]

Dude,now you are flat out trolling

Thus my odds are 4:5, right? For some reason when I try Kelly calculators online, these dont compute.