Thread by @trendrooster

In this thread…👇👇👇
How 1 Standard deviation (1SD) will help Non-directional option trade as an edge?

We all know 1SD on the normal distribution it covers 68% probability. This is well known fact and it will remain same. Of course, once the distribution is changed based on movement, time duration or volatility it will increase or decrease the 1SD level.

So, 1SD is not constant and it will expand or shrink based on the above scenario. As a non-directional trader, one must have constant eye on 1SD level to match up the strikes with the current market condition.

If I match the strikes closer to 1SD levels does that mean I will have 68% probability?
The answer is Yes and No.

No. = we don’t know the distribution of outcome.

Yes. = If we match the strike and keep trying to match the levels with 1SD, we may have 68% probability. This will work only on “Law of Large Numbers”. Means, No one knows the next trade outcome and its distribution.

Once we play the trade based on the 1SD level and continue to be glued with 1SD levels, we will have the 68% probability on a greater number of trades.

End of 1SD thread. I will cover the "Law of Large Numbers" on next thread.