Options Probability Cone

A probability cone uses historical option data and a statistical formula in order to the graph the potential future range for stock prices. The main purpose of the Probability Cone is to provide a graphic representation of odds for an individual market to reach a price and time projection.

Image shows the Probability Cone on NIFTY

How to activate this tool?

First you have to go to Options Desk Price Chart Tab

Next searing for the Chart Bottom Bar. There is a OI Profile Menu in the Chart Bottom Bar

Criteria and Default Settings

This tool is activated only on 1DAY timeframe

The default settings use 90Day period Historical Volatility calculated from the current price with the Probability’s set to One, Two, and Three Standard Deviations (68.2689%, 95.4499%, and 99.73%).You can change settings to use both Historical and Implied Volatility as basis

You can choose one of following as basis for calculation 1. ATM Implied Volatility 2. 30D, 60D, 90D, 180D and 365D Hisorical Volatility

An example perhaps

Any price in the future that occurs between the 1 Standard Deviation area of the Cone has a 68.2689% chance of occurring based on historical volatility. As the time range moves into the future the cones or area of potential price movement grow larger

Extending through 3 months of expiry. The theory behind this is that a market has a much greater chance of trading at a price range INR 1,793 above or below the current price in 3 months than it does of only a INR 600 range based on the options pricing methods

Finally, if you are the Geeky kind, some math for you