Vertical Option Spreads: A Study of the 1.8 Standard Deviation Inflection Point, + Website

CHAPTER 10

More Using Your Crystal Ball and Probability

In the last chapter, we introduced the Excel add-in, Oracle's Crystal Ball, and how it can be used as a wonderful tool to assess probabilities on various credit spreads using the Trading Spreadsheet (TS) provided with this book. This chapter is to expand on the use of Crystal Ball (CB) using the TS on a number of different option positions; setting up of assumptions in a logical way using the TS; running hundreds, if not thousands, of iterations of simulations of the trade setup; and interpreting the CB results. As you know by now, we prefer the use of weekly credit spreads, which is the subject of the 1.8 Standard Deviation Solution, based on historical probabilities and CB simulations. However, the TS can be used for any number of option trades if the user wants to explore other trade possibilities. Please realize that our historical data refer solely to weekly credit spreads so that there is no confusion as to any claims that many of the trades in this chapter are not related to our Amazing Spreadsheet, which is a database of results of weekly credit spreads and iron condors and no more!

■ A Review of Crystal Ball Tools

The first thing we want you to do is to ensure you have properly loaded CB onto your computer as an add-in to Excel. Once CB is added successfully to your Excel program, you will have a menu option tab called, appropriately, Crystal Ball at the far top-right of your Excel menu. CB's menu was described in ...