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RE: What is positive versus negative mathematical expectation in option spread trading?
As did you;
If you only trade this rule, it looks like this;
A call credit spread is created by selling SPY April 6th 269 for 0.74 and buying the April 6th 270 call for 0.31 for net credit of 0.33, which times 100 = $33.00 per contract.
The “new” mathematical expectation calculation looks like this;
$33 x 0.79 = $26.07 (win)
$ 67 x 0.21 = $14.07 lose)
So if you trade this credit spread 100 times, you will win $33 79% of the time for a total gain of $26.07 and you will lose 21% of the time, $67 x .21 = $14.07 loss. So if you do the math, this vertical spread trade with a 33% credit requirement to make the trade does have a positive mathematical expectation.
Thank you.