Q: I have a question on the utility of this tool.
I purchased a code this morning set it up and used the market scan. I ended up getting some advice that was contradictory and executed the trade. I reached out to support and the agent gave me some information that is concerning to me. I’ve quoted that below. These two quotes are suggesting that this tool does not do the things the marketing materials suggest. I’m trying to get a better understanding of what my expectations should be.
Quote 1: I apologize if any of the material was confusing, I will forward this to our team any ask them to review it. Please know that the PoP is not a prediction, it is merely a statistical calculation, based on current volatility and prices. Usually, traders use it as a measure of how likely the trade is to succeed if market conditions remain the same.
Quote 2: I'm sorry ff the results of the PoP and forecast seem contradicting, but they are two different things. The PoP is not a prediction on how likely the trade is to turn a profit, it should be interpreted as how risky the trade is going forward, if conditions remain the same. For example, a Long Put with a strike price far off the money has a very low PoP, because if volatility remains the same the stocks will likely not fall that far.
Seb_SkyblueAnalytics
May 15, 2024A: Hi Sumoling,
Thank you for your question.
This is an excellent opportunity to clarify the difference between the Probability of Profit (PoP) of a strategy and the suggestions of our forecast. The PoP of an options strategy is a trend-agnostic calculation that does not indicate whether the asset's price will rise, fall, or remain constant. It simply assumes the price movement is random. In simpler terms, it indicates the likelihood of profiting from the strategy if prices moved randomly, given a certain level of volatility. However, in reality, asset prices do not fluctuate randomly. Many traders spend their days identifying and predicting these trends. This is where our forecast comes into play; it employs a complex machine learning algorithm to predict whether the price change will be biased upwards or downwards and whether volatility will increase or decrease. Needless to say, although we are very proud of our forecast's predictive power, it is not infallible and may perform inconsistently!
I hope this explains the difference between the two. The PoP% and the suggestions from our forecast inform about two completely different aspects. If you have any further questions or doubts about any metric on our platform, please feel free to make another question. You can also contact me directly at smusso@skyblueanalytics.com. Thanks a lot for using our platform!
Best regards,
Seb.