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An 80% Win Rate Still Loses Along the Way
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ticker lesson
Breakdown
0:00lesson
Probability of profit explained
- POP = probability trade makes at least a penny at expiration
- Important for options traders
- Helps weigh capital investment vs upside/downside
- Doesn't show profitability over time
1:33lesson
POP calculation methods
- POP estimated via delta or distribution of outcomes
- More robust with distribution analysis
- Assumes continuous price movement and constant volatility
- Less reliable for earnings events or short-term trades
3:19lesson
POP vs realized outcomes
- POP is an estimate, not a guarantee
- Realized POP can differ significantly
- Implied volatility often exceeds expected
- Most trades have losing moments but recover
5:14lesson
POP and trade duration
- POP tells end result, not trade evolution
- Small losses common and often recovered
- Strategies with same POP can have different outcomes
- Early management affects realized POP
7:00lesson
POP vs expected value
- POP = single trade outcome, not average over time
- Same POP can result in different average outcomes
- Losses and profits weighted equally in POP
- Need different mechanics for average profit/loss
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