Options · Building an options strategy · lesson 3 of 9 · 7 min read · David Alexander
Why expectancy breaks on options
why expectancy breaks
The platform's expectancy tool - win rate, average win, average loss - assumes a roughly binary, linear payoff: a trade wins about this much or loses about that much. Options payoffs are non-linear and continuous: a long option can lose its whole premium, break even, or gain a little or a lot depending on exactly where the underlying lands, so 'average win' and 'average loss' hide a whole distribution of outcomes. The tool that served five tracks breaks here, and the module needs a new one.
This lesson is part of the advanced modules.
Modules 6 to 8 are included with a paid account. The definitional summary above is the whole of this page until then.