Some people will try

to take a simple concept and sprinkle it with some mumbo jumbo to make it seem

complicated and then claim only they can explain it to you! Don't listen or

don't buy into any such load of bunk!

Take options. Yes, a

lot of people, maybe even your stockbroker, will tell you options are too

complicated and confusing. What they may really be telling you is options are

something they don't want to spend the time to understand, so they don't want

you to trade them either!

It was only ten

years ago, that a privileged few investors who could take advantage of things

like streaming quotes and real-time options chains. Options were shrouded in

mystery and deemed too complex for the average Joe – to be traded only by the

so-called "sophisticated" professional investors.

Since then, however,

seismic changes in the options world have leveled the playing field for

individual traders and investors. Thanks to advances in technology, innovative

trading tools, and better access to what was once privileged information, the

self-directed investor is now equipped with the ability to trade like a

professional options trader.

**So, now that we as self-directed investors have the same
technology as professional traders why aren't we applying the technology in the
same way?**

We all know that a

stock or ETF only has a 50/50 statistical chance of success. That's right, no

better than a coin flip. But, what most self-directed investors don't know is

that there is a way to increase the statistical chance of success to well above

50/50. Professional options traders do, and they have been using powerful,

statistically-based strategies for years. But, as I stated before, now we have

the same technology. Now it is up to us to use it to our advantage.

If I could choose

one of the more powerful tools offered in today's options trading software it

would be the option theoreticals offered. Probability of Expiring (ITM or OTM)

is the most informative data point among the options theoretical and one that I

employ every day for my readers at Crowder Options.

**The Power of Probabilities**

Probability of

Expiring is the chance that a stock will close in-the-money at options

expiration.

So, the real

question is, how can you use Probability of Expiring to your advantage?

Say, I believe that

the SPDR S&P 500 ETF (SPY) is currently in a short-term overbought state

and the market is due for a sell-off and I want to place a trade that has

roughly an 85% probability of expiring out-of-the-money, or as I like to refer

it as the probability of success.

I realize that some

of you do not have access to trading software that gives you the probability of

success, but any worthy trading software will provide you with the delta of any

given option.

Just look above and

you will notice that how delta the probability of expiring out-of-the-money

minus 100. The formula 100-delta = POE.

So, let's look at

how we can apply probability of expiring out-of-the-money or delta to the real

world.

Hypothetically

speaking, I want to place a defined-risk, bearish trade with an 85% chance of expiring

out of the money.

A bear call spread

fits the bill.

As seen in the

option chain above the 148 calls have a probability of expiring

out-of-the-money of 85.48%. That means there is only a 15% chance that SPY will

close above 148 at January options expiration. In other words, the trade has an

85% chance of success because you want a credit spread to expire worthless by

not climbing above the 148 strike.

I could sell the

148/150 bear call spread for roughly $0.25. A return of 14.3% if the trade

closed at or below $148 at January expiration.

Not bad for a trade

that has an 85% probability of success.

If you choose a

trade with a lower probability of success, such as 67% you will be able to

bring in more premium with less capital at risk. But, it is important to

realize that when you give up probability for premium your chance of success

declines.

Simply stated, the

greater the risk, the greater the gain. You must always take that into

consideration because…is it worth making an extra 10% to give up 20% in your

probability of success? Sometimes yes, sometimes no – it truly depends on your

risk profile and conviction. In my case, I always side with probabilities. I

want consistent income on a monthly basis. I don't want the stress involved

with lower probability trades. It just doesn't make sense in most cases.

No glitz or glam

here – just straight trading.

There is no doubt

that we're at a special time in history. I think we'll see statistically-based

trading absolutely explode over the coming decade. Early adopters like you and

I will be sitting in the driver's seat as wave after wave of novice options

investors come into the fold**.**

I am keeping it short

as I have lots to work on for the coming days. If you haven’t, please take the

time to join my Twitter feed or Facebook.

Most of all, make sure you sign-up for my Free weekly newsletter, **Vertically-Inclined**