The Real Probability Of Making Money Day Trading Stocks, Options Or Penny Stocks

The Real Probability Of Making Money Day Trading Stocks, Options Or Penny Stocks

I go over the probabilities related to day trading both options & penny stocks, but mainly options. A lot of people are unaware of how probabilities, break evens and PoP works so I thought I would explain. I actually learned something new in the making of this video so that was awesome and a testament to how awesome and dynamic the markets are, always something to learn! But if you have been trading options, please make sure you understand this. This is break evens explained and a lot of people overlook the importance so don’t be one of those people. I encourage you to watch how these probabilities work and function and even look into probabilities and statistics in general, very interesting mathematical topic for those interested!

Before putting your money anywhere near this (or even paper trading it with your time) make sure you have your fundementals down. You can download the (free) audiobook Trading in the Zone: Master the Market which will make sure you have a good foundation for everything else.


The course on what to do with your trading profits (how to reinvest):

How to start trading options with a small account:

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DISCLAIMER: These videos are for educational purposes only. Nothing in this video should be construed as financial advice or a recommendation to buy or sell any sort of security or investment. Consult with a professional financial advisor before making any financial decisions. Investing in general and options trading especially is risky and has the potential for one to lose most or all of their initial investment

Write up:

all right my beautiful people I hope you’re having a wonderful Saturday I got Jax here in the background so you’re not gonna hear him being annoying but you might hear a squeak or two so forgive me but you guys gave me you know you gave me the feedback on these I got another video I want to talk about it um we’re gonna talk option pricing probability and the probability of you guys making money day trading I and I think this is an important topic for options and honestly in my own research of doing this I got to learn about something I didn’t know so especially with tasty works like probability of profit and your thinkorswim you could get probabilities I’ll show you guys how to pull this up but they’re different and if this is something I just learned I think it’d be something to clarify for all of you now I want to talk about option pricing breakeven on options and what is the last part probability of profit it’s the same thing really so that’s what we’re gonna talk about a neck I got this idea because I saw Oliver you know you had your man okay you had okay hold on hold on okay I’m gonna try it with Jax in the background anyways you’re gonna get a little used to me off there but I feel bad I can’t kick him out the training but it’s Oliver you know your boy commented on there and you guys were talking about another trading you know count on and I looked at a video and it referenced probabilities and I was actually shocked at what I saw because it was something I think that could get clarified um I think a lot of people misinterpret this and a lot of new traders are not aware of how it works even a lot of familiar traders so we’re gonna talk about that guys as always we were gonna be streaming every day that the market is open Monday through Friday so make sure you guys do not miss that yeah so let’s get into it option probability and break evens explained I don’t know why this I literally have a new chair I don’t know why this one squeaking so so this is one of the most simple but overlooked understandings in my opinion because most of you get it intuitively however a lot of people fail to understand the options application when we start looking at break even so breakeven is a term that comes up on every option when you buy an option it has the break even price and a lot of people don’t really understand how this works and what I mean by that is that they’re gonna break even but the implications this has a new understanding options is making money it’s very very important so what I want to go through is to make sure that you guys are really understanding how this is gonna affect your trade so we’re gonna talk about what I’m gonna go over what breakeven is for the beginners very very easily and quickly and then we’re gonna get into what I want to talk about here so well even in that this is for all of you understand how breakeven and probability of profit or pop this is what you see on tasty works one they’re different probability of profit and here probability in the money or your breakeven you see there’s many probabilities and this how you go to a non thinkorswim one you change the layout through here right so you could go to implied volatility probability all that click this options theoretical Xin Greeks and then for the basis of what I’m looking at we care about probability in the money because getting in the money is the closest thing to break even and well how it’s traditionally used so this is what I wanted to say the number one thing people miss is that probability of profit and break even price it’s all based upon the price at expiration date so the probability of your option being profitable it’s based upon expiration so a lot of people think okay this option has a 30% probability that I’m gonna make money no that’s not what it’s saying it’s saying there’s a 30% probability that it will go past your strike price and the price you paid so this is that thing I saw in that video was like woah woah woah woah woah I can’t believe people are actually looking at it like that because they think oh and that’s where I learned here threw you through a thinkorswim you could do probability of touching probability about the money and this is where I don’t like thinkorswim because they start to give you so much data that’s confusing so traditionally the closest thing to break even is probability out the money or excuse me probability in the money in the money see it gets confusing because that is where breakeven is trying to explain its breakeven is saying at expiration date you know you will make or lose money if it’s at this price so this is now for the beginning for the beginners this is how breakeven works think about it as a business I buy Easy’s for $100 and I want to flip them in order for me to not lose money I just have to sell those shoes for at least $100 that’s my breakeven price right if they aren’t selling for more and I want to get $100 I literally break even that means I don’t lose or I don’t profit that’s the same thing with options so when you hear breakeven that is saying well this is the event that I don’t make money now here’s the confusing part cuz like why does that matter Josh I want to make money why would they well you know why would a whole you know industry of options be based like why is the whole community in the financial industry based around explaining this whole breakeven concept why don’t they say how much to make money literally why don’t they do probability of profit because this is a derivative contract it’s letting you know because people bought these a lot of times you could buy to imagine buying an insurance policy where you didn’t lose money and you got to insure your asset and you got all of your premium back you’d be ecstatic well imagine if I gave you all of your car insurance back if you didn’t get in a car accident it’d be free so that’s how options are originally designed my friends we’re just trading them like degenerates we’re literally trading insurance policies for profit so that’s why you break even and if any of you are familiar in the insurance policy and we’re annuities this concept of breakeven and it comes up a lot but also just like business so what I get now let’s say I get $120 for those shoes I now profit twenty dollars but I know now if I’m not gonna get $100 I say what is the probability of the of the easies going to a hundred dollars if they’re not gonna get above a hundred dollars that means the probability of me losing money is hi hi there’s a just I’m gonna guaranteed lose money instead of not lose money right so but you get $20 profit to 120 you profit 20 so it’s pretty simple so what I’m saying is bring breakeven back to the option change this is what you guys are doing on the simplest scale but this is for all of you now you are running an option trading business you are literally holding inventory that has different break even prices you’re buying stuff with certain break sell it if you don’t get what you paid back for the item that’s it now the best part about your inventory you guys are even a different business your option contracts are literally like bread and milk they expire really really fast so you have a break even date you have a how much you paid for your inventory and then you have an expiration date so if you don’t sell your bread or your milk by this time for now it’s saying if you bought this is how but we’re using literally bread and milk you guys isn’t this is a beautiful option example but it’s so applicable because I think all of you could understand how fast and worthless expired milk becomes they don’t even sell it at stores or bread hard and bread moldy bread right so that’s literally what is going on here so if you say I’m paying $500 for bread that expires tomorrow it’s pretty much saying you need to be up the price of that bread needs to go to two whatever price you’re agreeing to buy it at five dollars a loaf plus 500 bucks over for you to make your money back so this is the whole point of what I’m talking about because breakeven is literally the reason why both you and I could buy the exact same option and you can lose while I’d make a profit or other way around right a lot of times that’s why I laugh and someone even commented they’re like how do we know this is not some scheme for you to front load everybody or to to take advantage of this and get ahead of everybody I’m like dude you guys front load me on some of the options and then that’s the whole that’s that’s why I say some of you guys could wait because if I overpay you could get in at a cheaper price and vice versa some of you guys jump in early oh well I might get it I might get it later because options is so volatile you can’t even front run doesn’t know what am I gonna front running because it is so volatile and changing and you know there’s a lot more billions of dollars that are making pushes and it’s a derivative it’s based upon the underlying stock so at the same time though if you guys are you know this whole concept to break even we could buy the exact same loaf of bread and we could say buy it at the exact same price like hey I’m buying this loaf of bread with the X you know agreeing to buy it for five dollars that’s a $5 call on bread right and it’s gonna you know when the breads gonna expire but if I paid $100 for that $5 call and you paid 200 well the bread could go to six dollars and I will break even and you will lose $100 you know and vice versa if it goes to 700 I’ll make $100 and you’ll break even but we literally bought the exact same thing however the price I paid to secure my bread versus yours is different and that’s what breakeven is is you’re paying this money to secure it and now this is why it’s so important because a lot of you guys it’s the same reason why I could look at an option change just like those Amazon weeklies and be like you guys asked me how do you know if it’s a good price understand breakeven you know if I see Amazon contract it’s like yeah Amazon in the next hour has to go $100 and I’m gonna pay $300 for that no way I get out of here you see cuz you know that is not likely that’s where you’ve got this is what I say and you’re keeping it paying attention you just gotta be smarter than one guy and be smarter in that case so this is another extreme point on the importance of timing because you see we buy one thing at one time or the other the guy who buys it at the right time can buy the exact same option if you know how that you could find out what I’m playing they go look at those iw M’s I gave that out to you guys not so you could follow I’m giving you guys this stuff not so you copy me but so you learn because guess what you guys will probably be able to find better prices on the exact same play ideas and hopefully you let you let a brother know you don’t help me out too but that is the whole kind of concept here but it’s it’s a very free beautiful game because you can kind of get the idea and everybody could have the idea but the one with the good timing and the one who’s understanding these concepts they are gonna make the most money so all of us could buy the same thing but each one of us is gonna make a different amount of money then isn’t that crazy that’s what I it’s beautiful right that’s life we could all be given the same thing but how are you gonna use it and what did you give up to get it so the true snipers they’re the ones who get it at a low breakeven so they buy it at a low premium because then that’s how options go crazy when I buy the 10 20 30 40 50 cent options I’m buying them at low premium so therefore the breakeven is very very low when I’m buying a 30 cent Amazon my breakeven is only adding 30 cents at the break even so when it goes up and up and up that’s the thing as the stock in expectations go up now the premium and breakevens do so I could have the same Amazon with a 30 cent break even and you could be paying 300 for that same one because now it changes all right so it can make a play in probabilities just literally are completely different and it could always be changing and that’s now the Greeks just like the Greeks right just like data felt Delta data theta Delta Theta Vega all that stuff breakeven in probability of profit are not static they are constantly changing a lot of people don’t realize this your Delta changes you could buy it at one point in one time with a certain Delta Theta however as implied volatility chain as everything in the price of the stock changes that goes with it once you purchase a car stock so breakevens are always changing that’s why option that this price is gonna have a different breakeven and at a different you know at a different time but once you purchase your contract your breakeven is locked in so the minute you spend a dollar for a hundred dollar contract your breakeven is 101 you need to make a hundred dollars and that is the concept hopefully you guys get where you make the money back through the shares because if you get in the money on a contract every one dollar will produce you a hundred dollars a profit because you have the right to a hundred shares so if I’m saying you bought a hundred dollar call for one dollar or a hundred dollars simply for you to make that hundred dollars back you have to the stock has to go one dollar above and now people are saying why why why why let me give you I forgot to write this down so let me put this here because at expiration or if you exercise the whole game I’m awful spelling your money is gone so when you buy a contract the minute you give it to the guy with the premium right I’m collecting it the minute you buy it the guy who sold it me or anybody else who’s selling premium they collect it and then what happens do you pay for it so if you exercise it the money’s gone you just have to make sure the underlying value of the contract is worth that’s why breakeven now is also so important so if it expires worthless you lose the money and that’s it but let’s say you expire in the money and but it’s not at your breakeven you would say don’t exercise to your broker because you would lose but the minute you exercise your money’s gone when you buy an option it is a sunk cost so just like you’re running your business the cost of the contract the inventory the minute you spend it it’s down the drain so unless you sell it back before expiration at expiration or if you exercise that money’s completely gone now so the underlying asset has to net you back more money in profit oh excuse me so like I said probability is locked in once you buy it however 30 seconds later that could change so if you buy it once you buy it your breakevens locked in but if somebody comes in and buys it in the stock of the option drops 50% they’re gonna have a different break easy breakeven but there you go because if the stock drops their breakeven their delta theta all that just change to so that’s something really really important to note that this stuff is not static it does that’s its dynamic and it changes a lot so and again that’s why sometimes I’m not I’m not a big fan of the Greeks if you watch my videos we’ll talk about that um it’s kind of related to the ghetto spreads and also like if you’re waiting for the ghetto spreads just hold up man you guys are you guys are going crazy he’s like food stamps but lastly I don’t know why skip to number 5 without a number 4 but that should you show you you know be careful of trusting people on the internet about finances including myself because most of the people on including me are pretty retarded so you guys should do your own research option probability is based in a degree off of past performance the black Scholes model well that the black Scholes model is calculus and I suck at math I still count on my fingers but there is ways to take advantage of it or where it’s flawed however to say you’re smarter than that system I don’t say I’m smarter than it however I just know you know what I go for the most academic way to explain my approach is that all markets have inefficiencies and I look for market inefficiency so when you guys are I mean you can’t find miss price accent um to say you know I do believe these markets run efficient most of the time however there are market inefficiencies in there are imbalances in supply and demand and all that stuff at times which lead to windows of opportunity so this is what I want you guys to understand that the black Scholes model and and how they’re coming up with these probabilities that’s what gives the price of an option which you know that so think about it the black Scholes model was coming up with this price here which is in effect saying you know this is why they expect it and how did that get generated this price is based on the past performance of the stock so if a stock over the last 300 it’s literally like square root 365 or something literally last five day 365 days it’s moved one percent with this percent with this outline like literally it’s a crazy formula but it’s saying statistically this is what’s gonna happen or most likely so the statistics of it the probability is just letting you know based on the past it’s odds of it moving or this that’s why when the contract is priced cheap it’s not that it’s all it’s a good deal in we’re scamming the market it just means the markets telling you historically and based off of this mathematical function the odds of this are very very low because that that’s just never gonna happen you know if you took it and plotted it on a scale a thousand times in a row the chances of what you’re saying is gonna happen is gonna happen two out of every hundred instances so that’s where it says you know it’s based on what’s happened in the past it which is how you get future expectations but I’m gonna talk about anything can happen however you have to understand probability is mutually exclusive meaning it doesn’t change based on what happens so even if the stock market drops or corrects for five days a week that doesn’t change the probability of stocks crashing or puts or calls going down because it’s temporary unless there is a historical down down down down down down down down down down down up down down down down you know what I’m saying but it’s a coin toss so what I’m trying to say now if I took a quarter and I flipped it in its heads that was a 50/50 I flip it again heads heads heads I do it nine times and it’s all nine times in a row I’m flipping a coin you know heads or tails and nine out of ten times my first nine times it hits heads is the probability of tails increased on the tenth one think about that answer below I want to know what you guys think I won’t well answer I want to know we’ll come back to it at the end and you’ll see if you were right or not and give me your analysis on this if it don’t just say yes or no explain it to me if you say yes explain why if you say no explain why or how would you take advantage of it if you came to a guy on the street you know it’s not a double sided coin he flips nine heads in a row and you could bet on the tenth one how many of you are betting tails how many of you have betting heads but pretty much as you see here options in some of the plays in it within efficiencies anything could happen that’s why you’d never know so if you’re selling premium you could still get your blown up because these aren’t always safe and like I’m saying this probability could change the probability here you know go watch my portfolio during the day you’ll notice that these probabilities change like this Boeing this will go to 40% probability to 80 in one day it’s always changing and always fluctuating so anything could happen in and this is why I’m making this video don’t trust statistics too much I love this statistics but what I’m trying to make sure you guys are balance where you’re not following these probabilities too much however it’s understanding statistics that’s why I really want you guys to say I’m not saying don’t trust it but understand when it works in your favor when it doesn’t or how to literally just interpret it so you guys are making the wisest smartest decision so give me your feedback on that and oh yeah this one’s gonna show you here is a probability profit on this face book it’s 23% and this is now what I learned is that pop is saying okay what this is saying probability of profit so it’s saying what are the chances I go past breakeven and make money so in this case if you bought a 170 Facebook and we bought it out to ask for $170 our breakeven is 170 170 so by February 15th is what it’s saying and that’s what the probability of profit saying is that by February 15th the chances of you making one hundred and seventy dollars and even more so a hundred seventy one dollars is making one dollar profit is about 23% so you go here this one’s saying it’s 30% on the same one same one seventy and this is what I said is you guys got to be careful because look at you go on every platform you know you’ll find whatever information to confirm whatever you want right I could get whatever primus probability look however I want because look 30% here it’s 7% different but now this is saying probability of just getting in the money but not necessarily what’s it called not necessarily profiting but all of the I everything though when you do look at these metrics it’s based upon expiration it’s not saying 30% in the money tomorrow 30% in the money today saying by expiration so it’s like if I gave it’s like a mortgage rate when I say yeah you’re playing four percent you know annualized or you know you know a you’re not paying four percent every single month it’s it’s spread out between 12 months that 4% right so again I could make this is where you guys you know the world the stock markets is filled with confirmation and now out the money 69 I could use whatever stats really to justify almost any strategy I want a probability of touching boom here’s my day trader okay oh wow 60 percent Oh 80% Wow there’s an eight in ten cents I’ll have a good coat you know what I’m saying so yeah you got to be careful on that because these change its 82 percent now when the shit’s not moving so think about that for a sec but I will leave you guys there hopefully you guys enjoyed this make sure you subscribe drop a like if it was helpful you guys dropped a bunch of comments on the last one again it motivated me a lot let me know what else you guys want the ghetto spreads video I want to make that one really really good and it is with selling premium so there’s a lot of advanced concepts so give me time with it but I’d rather honestly I’m gonna be doing those live I’ve been doing those live if you want more insight go watch some of the past selling premium videos if you watch any of the videos I’ve made I even have one how did literally in the description here how to make the premium or how to start trading with a small account you could see then where this tasty works account was you know it’s it’s grinding up but I’ve done every single trade here here is the account history I think I’ll upload this in another one and we’ll go from there and like I said to you guys this is tasty work so we have a referral link in the bio if you want to use it but I found a way to explain it more to people where if you want to use tasty works and all that I think if you’re trading with less than two thousand dollars go to Robin Hood if you have more than two thousand dollars go to tasty works if you want to use my referral link be my guest I would still recommend the same thing to you just go to tasty works calm and don’t put in my code and you can do the same exact thing if you could get uh if you could get the one dollar or cheap commissions from TOS do it but is why I never used TOS and you guys see where I love how pop this why I say it’s so powerful but for a guy like me who’s not technical and I told you I’m not the the brightest light bulb in the room I’m not a fan of this this is just too much for me so after I got my etrade or my hair my tasty work so I will leave it there I love you guys let me know your feedback and have a good weekend be safe go Rams..

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Comment (7)

  1. In real life, when extreme results occur (like 9 heads in a row), we become suspicious that there may be something going on that we don’t understand which is skewing the results. For this reason I might have a very slight inclination to believe that the dude’s 10th coin flip would be more likely to land on heads again. It would all depend on how much I trust the premise that the coin flips are genuinely 50/50, and how much the 9 heads in a row undermine that belief.

    But if you say it’s a genuine coin flip BY DEFINITION, then of course the outcome is 50/50 BY DEFINITION. In which case, the correct answer in your hypothetical situation is already built into its premise (50/50 will always be right now matter how many heads preceded it).

    This is why hypotheticals can be rather inapplicable to the real world. I actually trust the 50/50 premise quite strongly so 9 heads in a row probably wouldn’t change my outlook much, but 900 or 9 million heads? At some point I would have to question my assumptions.

  2. Options Probability
    1:52 Break even point + POP (probability of profit)
    4:12 Break even ~ Probability In The Money
    6:30 “You are running an options trading business”… You holding inventory and it expires like bread & milk.
    9:21 How do you know its (the option is) at good price ~ (Hint:) understand break even
    11:28 Just like the Greeks … not static – (it’s dynamic) … When you buy the contract your breakeven is locked in.
    12:47 “Because at expiration or if you exercise the money is gone”.
    15:05 “Option probability is based in a degree of past performance”. … “all market have inefficiencies” and imbalances that lead to opportunity.

  3. Haha I’m really enjoying this channel. I’m not getting anything out of it in terms of my options trading, but it’s still good. The answer is each flip is independent from each other and it’s still 50% since you asked the probability of getting heads, now if you said heads two more times that would be different. I’m interested in this so called ghetto spread cuz I like this entertainment.


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