The Skinny on Options: Abstract Applications - June 7, 2021 - Continuous Probabilities Part 2

published 6 days ago by tastytrade, Inc.

Today, we continue our discussion around continuous probabilities that we started last time on the Skinny. Back in part one, we encountered the problem of trying to find points of probability on a continuous distribution. Because there are no finite intervals in a continuous distribution, it is not possible to arrive at any singular points on the curve.In this piece, we learn that taking our results from the probability density function and inserting them into a cumulative distribution function allows us to sidestep this issue. Rather than look for points on the curve, we shift to measuring areas under the curve. Lastly, when we look closely at the cumulative distribution function, we see that its shape is identical to that of Delta.

more episodes from The tastytrade network