Standard Deviation Explained | Options Trading Concepts

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[proseq]

Guys you’ll need to give some price examples of real stocks and options price

[roc]

Dear Mike: You work so-so-so hard to make these instructional option videos!!! A text cannot express my gratitude for what you teach! It is a shame that what you do is not well known.

[harshadevisetty]

WOW! I felt like the golden question has been answered to where to pick the strike price!! I'm a beginner and am just learning all the basic terminology. You guys are doing a great job!

[LumleyTradingYT]

Use it myself, love standard deviation channels, helped me become a profitable trader :)

[yourdailymusic]

Don't understand much, but i'll keep rewatching it later. Thank you.

[bradfl]

Thanks for explaining these concepts in an easy to understand way Mike.

[man_named_nobody]

Hey Mike, as always great content. I am trying to understand the concept, so apologize in advance if I misspeak. According to the diagrams, there is a 68% chance that prices will vary above or below the mean (34% on either side of the mean). So, they will be In-the-Money. There is 32% (16% beyond the 1 SD boundaries on either side of the mean, where the prices will be Out-of-Money. This is the area that we should try to sell. Did I get that right? However, I heard you say a few times and at 5:09 just the opposite, which confused me. Lets take an example of a $100 stock with an IV of 20%. So, there is a 68% chance that it will vary b/w 80 (downside) and 120 (upside).If we sell in any of the strikes in this range, then there is 68% chance that we will be ITM (green area). Therefore, to be OTM (red area) we should sell below 80 or above 120 strikes, which are beyond 84th (= 1 SD) percentile (68 + (32 / 2)). Am I correct in my understanding?

[sunilkalla]

Great video. thx. Ho w do I find out One SD price for SPY on TOS plateform ?

[CS-wwbs]

Just FYI, The link to learn more doesn't work in the description box

[david_sdiego]

Doesn't one standard deviation always correspond to the same deltas (i.e. 16 & 84)?

[LilacTian]

I tried to replay back, but I couldn't catch where you said we could get the Excel sheet. Could you please Advise here? Thank you very much.

[Maitreya]

I finally understand what standard deviation is!

[indigo]

Mike - this is a brilliant series! Thanks!!

[codesymphony]

Do you use the delta to represent these percentages?

[mrithun]

this is all assuming prices follow a normal distribution curve, but realistically speaking how often does that occur

[BharatMataKiJaiii]

Hi, when you say “If we have a stock at $100, and IV of 20%” are you referring to the Implied Vol of ATM option for the stock??

[ashishagrawal]

Mike: If we are selling weekly options, then should we see weekly SD or daily SD

[TraderDT]

Mike: If I wanted to know SD levels (eg..1SD, 1.5SD, 2SD) for any given stock, index, etc...so i could plot those levels (via price levels) on my chart, how do i go about doing that? I saw the TT segment with DR Data who uses google sheets. Is there an easier way to find SD levels using TOS analytics?

[jaik-investmentsandwealthc]

I think above explanation would still be confusing for certain users... Here is my explanation
Math part - One SD = 68% probability of something happening. This 68 % can be considered as 34% probability on each side....
Plotting this on a line, would look like this
Now lets come to selling a naked OTM Call.
Lets assume underlying stock is at 100 and we are planning to sell a naked OTM call...
Of course any future price below 100 will ensure call is OTM. Now refer back to the plotted line, 16% + 34% = 50%. In other words underlying can go anywhere below 100 (16% + 34%) and the call will remain OTM
Now focus on right side of the plotted line. On the right side there is a 34% probability that call remains OTM. So adding 50% on the left of plotted line and 34% on the right side gives you 84% probability of call being OTM.

Now when you sell a strangle, you can lose money on both sides equally.... So for a strangle look at the plotted line....you just have 34% OTM probability on both sides (34%+34%) ie 68% OTM probability for the strangle as a whole.

[awkb]

its called white board session but you aren't writing on the white board enough. can you write down the strikes ? you said "imagine that the strike is this number" i wouldn't have to imagine if you wrote the number down on the white