What is probability and how it works in Stock Market?
A field of mathematics concerned with the examination of random processes is known as probability theory. A random event’s outcome cannot be predicted before it occurs, although it could be any of multiple possibilities. The final result is said to be dictated by chance.
Now how does that apply to stock market?
A Stock/index has three probibilities that is
- it can go up that is increase
- it can go down that is decrease
- it can remain around same price
So, there is 33.33% probability of a event above happening.
Now, how does this apply to stock/index options?
Call option and put option have 33.33% of success, so that is very clear to anyone.
Stock remaining around same price … Read the rest