Market Measures - April 13, 2021 - Defining Outlier Risk

published 1 month ago by tastytrade, Inc.

Quantifying the outlier risk for an option is tricky, but one method is to relate it to the total amount of capital at risk when placing a trade.  When we use metrics that are based on past data (e.g. probability of loss worse than -2x initial credit, CVaR), we are averaging over a range of market conditions and volatility environments.  This makes it difficult to get an idea of outlier risk on a trade-by-trade basis.  Join Tom and Tony as they discuss defining option outlier risk in more detail.

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