Probability Lab

def

def

Sponsor
IB has launched the Probability Lab. We'd be interested in your comments. Please see the message announcing the Probability Lab from IB's chairman and founder, Thomas Peterffy below.

http://www.youtube.com/watch?v=9j6G5AJqCS0&feature=youtu.be

This month, with great anticipation, we are introducing the first of several editions of our Probability Lab℠ (Patent Pending). Probability Lab encompasses the basic understanding and approach with which I began my career in the option business over 40 years ago. In those early days you could only buy or sell options in the OTC markets, and as I started thinking about how to price them, one day a light bulb went on in my head. Soon thereafter I started Timber Hill, our option market-making firm.

In subsequent years much academic and technological focus came to this field bringing many refinements at the edges, but from the practical point of view of a trader, not much has changed. The basic elements of my approach are spelled out in a letter at www.interactivebrokers.com/probabilities

My hope is that many of our customers will see these ideas as common sense. You will use the Probability Lab to experiment with the shape of Probability Distributions and study the combination trades with the highest Sharpe ratio. (The ratio of expected profit to the variability of outcome).

Increasing our customers' profitability remains our ultimate objective. I hope this tool will help.

Open the Probability Lab using the New Window dropdown from within Mosaic, or the Trading Tools menu from within TWS (version 942).

Thomas Peterffy
Founder
 
The most useless options tool I've ever come across. It is so typical for IB to provide useless or incomplete tools in their TWS.
How do you expect a retail trader to be able to forecast the possibilities distribution of dozens of price ranges for an underlying? It is hard enough just to try to forecast the upper and lower limits of a price range.
You want to help us, options traders? Then put all your efforts in the Risk Simulator portion of TWS. Make it more intuitive, improve its medieval graphics, enable it to launch directly spread orders not separate useless options orders as presently, enable it to perform Beta weighting of portfolios, and of course have Optionstrader integrated fully with the simulator as one tool.
This is what you guys need to do. Stop wasting your time and ours.
 
Quote from Mozart40:

The most useless options tool I've ever come across. It is so typical for IB to provide useless or incomplete tools in their TWS.
How do you expect a retail trader to be able to forecast the possibilities distribution of dozens of price ranges for an underlying? It is hard enough just to try to forecast the upper and lower limits of a price range.
You want to help us, options traders? Then put all your efforts in the Risk Simulator portion of TWS. Make it more intuitive, improve its medieval graphics, enable it to launch directly spread orders not separate useless options orders as presently, enable it to perform Beta weighting of portfolios, and of course have Optionstrader integrated fully with the simulator as one tool.
This is what you guys need to do. Stop wasting your time and ours.
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Perhaps your recommendations will be considered for the risk navigator.

However, I think you miss the point on the probability lab. If someone placing a spread order isn't thinking of the likelihood of the strategy being in or out of the money, they should not be placing the order in the first place. For those that play around with it, I think the majority of users will find it helpful in determining optimal strategies and visualizing where and how the market is predicting future prices.
 
Quote from Brighton:

In the original post, what does the release of the "first of several editions" mean?
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More features will be added. I'll quote from the link from the initial post that points to the discussion on our site https://www.interactivebrokers.com/en/index.php?f=5910 :

"In subsequent releases of this tool we'll address buy writes, rebalancing for delta, multi-expiration combination trades, rolling forward of expiring positions and further refinements of the Probability Lab."
 
Thank you.

On a related note, are there plans to make some of the recently released options tools work for futures options?
 
Quote from Brighton:

Thank you.

On a related note, are there plans to make some of the recently released options tools work for futures options?
More...

I'll reserve this thread for just probability lab and it does work with futures options.
 
I don't think I am missing the point on probabilities.

One thing is "thinking of the likelihood of the strategy being in or out of the money", for which a simple log-normal distribution curve would be sufficient (deltas are also a pretty good approximation), and a totally different thing is to expect the user to micromanage the probability curve and to foretell the probabilities of every and each price slice to be in the money. This is totally absurd. We are investors not prophets.
 
An_introducing broker_will usually help new clients with understanding the most fundamental and useful techniques for trading in Forex. When looking to trade currency pairs, a technical analysis is necessary to help predict future trends and thus when to trade the currency pair in one direction or the other.
 
def, Great start. If I could build my custom PD curves faster that would be great. One idea would be to draw by dragging across the x axis, or some other mechanism to recenter or shift the PD, rather than adjusting each individual strike bar.
 
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