Trade Ideas Probability & Performance: Expected Value vs. Realized P/L

Welcome to the first installment in a series on all things Probability—a field that epitomizes the mathematical understanding of uncertainty. Probability is more than a set of mathematical rules; it's the study of randomness and patterns that exist within that randomness. In this series, we’ll explore all facets of Probability as they relate to options trading.

Expected Value (EV) is a core concept in probability theory. In options trading, it is a practical tool to understand market expectations and optimize trading decisions, which is why we’ve made it central to Trade Idea selection. By quantifying potential outcomes and assessing the potential risk of a trading strategy, EV serves as a mathematical compass aiding traders in decision-making.

Given its recent addition to Trade Ideas in both raw form and use in the Alpha rank, I’d like to start this series by visualizing EV and studying its effectiveness. We analyzed approximately 130k Trade Ideas generated over a 30-day period across 155 different underlying symbols. Enjoy!