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RE: What is positive versus negative mathematical expectation in option spread trading?
It is hard to make money on $1 wide credit spreads, but there is an error in the mathematical equation:
It assumes that you make full loss every time you lose, but that is not the case.
Besides that, a $1 wide credit spread with 20 cents in credit has a theoretical win rate of 80%.
Selling premium is profitable, since IV is overstated.
The math equation above does not account for this fact.
Here is a study conducted by tastytrade:
https://www.tastytrade.com/tt/shows/trade-logic-unlocked/episodes/why-trading-options-is-not-a-zero-sum-game-09-26-2019
I agree that one dollar spreads are difficult to profit from. I think the author is used one dollar for simplicity, but I agree the credits look to small to take the risk.
I agree with the 80%, I was unsure why 79% was used. I assumed the author was just making a point by massaging the numbers a bit or just bring imprecise, not sure the exact motivation...
I am impressed that you have written three books.
Many of us on Steemit have the desire to do that, but you have done it. Congratulations.
I am glad you discovered Steemleo and I look forward to reading your posts.
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