Probability of expiration for an iron condor

S

sync

If you have an IC with a credit and the short strikes each have a delta of 30, what is the probability that the market will reach one of those strikes at expiration - is it 30% or 60%?

I realize there are other factors involved. I'm just trying to figure out how to estimate this based on the deltas.
 
Using a delta is a rough estimation of the probability of expiration. If both of the legs have a delta of exactly 30 then there is a 30% chance of expiration. If you are doing some kind of ratio condor or other variation on the plain-vanilla condor you would have to throw the spread into some type of analysis software to tell you the probability of expiration in that particular case.
 
That's what I thought. Yesterday I watched a Dan Sheridan video at CBOE and he said it was 60%.

Quote from hdawg87:

Using a delta is a rough estimation of the probability of expiration. If both of the legs have a delta of exactly 30 then there is a 30% chance of expiration.
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Quote from sync:

That's what I thought. Yesterday I watched a Dan Sheridan video at CBOE and he said it was 60%.
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I think 60% is the correct answer.

Look at it this way, a coin toss is 50% what is the combined probability of heads or tails?

Don
 
If you are asking what’s the probability of the price ending at expiry either above a higher strike price or below a lower strike price with deltas +0.3 and -0.3 then the answer is aprox. 60%. (30% above strike1, 30% below strike2, 40% between strike2 and strike1)
 
If the area under the bell curve above the higher strike is p=0.3, then the area under the curve below the strike is 1-p = 1-0.3 = 0.7.

For the second lower strike the area below that strike is p2 = 0.3, and above 1-p2 = 0.7

Therefore area between strikes is (1-p) - p2 = 0.7 - 0.3 = 0.4
 
Quote from gkishot:

What software did you use?
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I use TOS. I don't fully understand the Analyze screen yet and am not getting consistent results with it.
 
Quote from Don87109:

I think 60% is the correct answer.

Look at it this way, a coin toss is 50% what is the combined probability of heads or tails?

Don
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I actually did come up with that analogy on my own. But with a coin it has to be one or the other. With an option it doesn't have to reach either strike price.
 
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