ThinkOrSwim's Probability OTM, ITM, of Touching Calculator

I think the most interesting output is the probability of touch, which is approx TWICE the probability of the option finishing ITM. For example, if we assume the delta is approx the prob of finishing ITM, then a 30D option has a 30% chance of expiring ITM and a 60% chance of touching ATM during it's lifetime.
 
Trader13's statement: "probability of touch is approx TWICE the probability of the option finishing ITM" is a fairly accurate rule of thumb for Out-of-the-Money Options, but it does not apply very well for In-the-Money Options.
 

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Quote from sgfee123:

Trader13's statement: "probability of touch is approx TWICE the probability of the option finishing ITM" is a fairly accurate rule of thumb for Out-of-the-Money Options, but it does not apply very well for In-the-Money Options.
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There are many reasons why the POT will be off on a sheet; rates(imp fwd), microstructure, etc. Use a traded vol (for a given strike), mark spot T&S and use a model to price the POT. It's still GIGO. Trader13s statement is entirely accurate.

I could place a bid inside the MMer and skew POT by many BP.
 
Quote from cactiman:

1. How does this calculator come up with the % number? I have a basic understanding of Historical and Implied Volatility, Standard Deviation, the Greeks, and the Black Scholes model. Is it a combination of all these things?
2. How accurate has anyone found the thinkorswim % numbers to be? Anyone back tested it?

Thanks in advance for any comments or suggestions.

:)
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Basically, yes. I have my own calculator that I came up with years ago. I'd like to see how it compares to the one on Think and Swim.

As for the backtesting, that would not make a great deal of sense. If the IV does not change, a model based on Black Scholes will work perfectly; but IV always changes, so it does not and cannot. That's what those LTCM guys never figured out until it was too late.
 
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