High Probability Option Strategy

What are the characteristics of this option strategy?

High Probability Option Strategies aim to achieve higher probability of success, usually by constructing options spread with minimal risk and limited reward. Those spread will tend to take advantage in situations where small moves in the underlying security can produce a profit. Examples of those strategies are short iron butterfly and vertical options spread.

Is this a bullish, bearish or neutral strategy?

This is a neutral strategy since it does not involve a directional bias.

Is this a beginner or an advanced option strategy?

This is considered an advanced option strategy due to the complexity of the setup and the need for an in-depth understanding of the pricing of options.

In what situation will I use this strategy?

Typically this strategies will work well in conditions of low volatility, when the underlying security might not have a big move. This strategies are also very popular in times when the market makes small moves.

Where does this strategy typically fall in the range of risk-reward and probability of profit?

This strategy usually has a higher probability of success but a relatively low reward. The risk is usually limited to the amount of money involved in the setup of the trade.

How is this strategy affected by the greeks?

The impact of the Greeks will depend on the nature of the spread. For example, a short iron butterfly will be affected mostly by the change in implied volatility, Delta and Theta.

In what volatility regime (i.e VIX level) would this strategy be optimal?

This strategy is best used when there is low volatility, with the VIX below 15, as that is when there is the greatest chance of small moves in the underlying security.

How do I adjust this strategy when the trade goes against me? And how easy or difficult is this strategy to adjust?

Adjusting a high probability option strategy when the trade goes against you can be difficult and it also depends on the nature of the spread. Some adjustments can be done easily, such as rolling the options to a later expiration date, while others will require more intricate steps.

Where does this strategy typically fall in the range of commissions and fees?

High probability option strategies tend to be more expensive due to the additional cost of the options involved in setting up the spread. They also require more complex setup and adjustment, which can mean additional commissions.

Is this a good option income strategy?

High probability strategies are not necessarily options income strategies, as they tend to have lower returns due to limited reward and relatively low risks. However, some of them can be used as part of an income strategy, especially when combined with other strategies.

How do I know when to exit this strategy?

It is important to have an exit strategy before entering into any option strategy. For high probability option strategies, it is recommended to have a trailing stop loss (to minimize losses) as well as a profit target (to maximize gains).

How will market makers respond to this trade being opened?

Market makers will typically take a neutral stance when it comes to this strategy, since the risk/reward is limited. This means that they will not try to take advantage of any pricing mispricing.

What is an example (with calculations) of this strategy?

One example of a high probability option strategy is the Short Iron Butterfly [https://marketxls.com/short-iron-butterfly-explained-excel-template/]. This strategy combines the purchase of a put and a call option at the same strike price, with the sale of two different put and call options with different strike prices. This enables the trader to have limited risks while having a chance of profit due to the price movements of the underlying security. Another example is the Vertical Options Spread [https://marketxls.com/vertical-options-spread/], which involves the purchase of an in-the-money option and the sale of an out-of-the-money option of the same kind at the same expiry date.

How MarketXLS Helps

MarketXLS is a comprehensive stock and options toolsheet that allows you to easily analyze complex option strategies. With MarketXLS, you can create and track multiple high probability option strategies in one place, getting real-time research and analysis on stocks, ETFs, and options in stocks. You can get insights into pricing of options and also set up stop loss and target prices, making it easy to track and manage your high probability option strategies.

Here are some templates that you can use to create your own models

Search for all Templates here: https://marketxls.com/templates/

Relevant blogs that you can read to learn more about the topic

The Benefits of Using Call Credit Spreads for Trading
Iron Condor Options Strategy – Video Explanation
Vertical Options Spread (Using Marketxls)
Long Butterfly Spread With Puts (Using Excel Template)
Iron Condor (Excel Template)