Understanding probability on thinkorswim

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amit.mahajan12

I would expect these 2 probabilities to match: Probability of Touching (shown in the option chain table) and probabilities shown in the Probability Analysis graph -- but they don't. As of right now:
2500 call expiring 24 Apr 2020 - Probability of Touching is 26.77%
But from Probability Analysis - probability of being above 2500 for the same date is 15.26%

Is it because the first one is probability of touching on or before the date, whereas second one is price being above that on that date? Or is it something else?

Additionally, the Probability of Touching for the same strike price and expiration for put is 17.06%. That again doesn't make sense to me, but I am sure there must be some explanation for it.

Can someone who knows these probabilities better shed some light on this? Thanks in advance!
 
Probability of touching is the change over the next 9 days that the price ever gets to the strike. Probability analysis is the chance that it is at or above the strike upon expiration.
So they are not the same.

Unless I misunderstand the probability of touch for a call and a put of the same strike/expiration should add up to 100. At any the call or the put would be in the money right?
 
minmike said:
Probability of touching is the change over the next 9 days that the price ever gets to the strike. Probability analysis is the chance that it is at or above the strike upon expiration.
So they are not the same.
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That makes sense to me. But going by that definition, anything that's ITM should have 100% probability of touching, no? But put like I said has a probability that I find it difficult to correlate with the call side probability.
 
I would probably pay way less attention to there numbers. If it isnt a greek, it is a in house calculation. Maybe across the whole option universe they are pretty accurate, but will have real variance in specific cases.
 
Sure, I guess that's the sense I am getting. But it would still be good to understand these probabilities for reference, even if I don't use them in my decision making.
 
What ticker?

And I if you mean prob of touch vs prob of itm/otm. Porb of touch means being above (call)/ below (put) your strike sometime during the life of the option. Prob of itm means prob of being itm at the end of expiration. The latter will always be lower.
 
How would you reference them usefully and not use them in decision making?

Better question. If I could improved the prediction by 10%, would that be worth anything to you?
 
amit.mahajan12 said:
I would expect these 2 probabilities to match: Probability of Touching (shown in the option chain table) and probabilities shown in the Probability Analysis graph -- but they don't. As of right now:
2500 call expiring 24 Apr 2020 - Probability of Touching is 26.77%
But from Probability Analysis - probability of being above 2500 for the same date is 15.26%

Is it because the first one is probability of touching on or before the date, whereas second one is price being above that on that date? Or is it something else?

Additionally, the Probability of Touching for the same strike price and expiration for put is 17.06%. That again doesn't make sense to me, but I am sure there must be some explanation for it.

Can someone who knows these probabilities better shed some light on this? Thanks in advance!
More...
Search old ET posts and you should find lots of discussions on this topic.

A quick rule of thumb for us amateur retails is, for an ATM strike, delta is the probability of underlying end up at that value at expiry, and 2 x delta is the probability of touch during the whole period. For non ATM options I remember some one said use N(d2) instead of delta.
 
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