Screening and probability

Everything on this page happens before you place the order. Which contracts are worth looking at, what the odds attached to them actually mean, and what the trade is worth after the costs nobody itemises. Ten articles below, all of them running on one screen: 60 names, one monthly expiry, 812 contracts in and four out.

Probability of profit against probability of touchTwo numbers describe the same short call and they are miles apart. One covered call with an 82.3 percent chance of expiring worthless has a 35.3 percent chance of trading through the strike first. Why the second number is exactly twice the first, and which one you should manage against.
Expected value of a premium-selling tradeBuild the EV tree on one covered call: an 82.3 percent branch worth plus $62 and a 17.7 percent branch worth minus $293. It sums to zero, because the price was set to make it sum to zero. Where a real edge could come from, and what the spread leaves of it.
Why 0.20 delta is about 80 percentThe shortcut every options seller uses, checked against the model on eight strikes. Delta overstates the odds of finishing in the money by two to four points, always in the same direction, and the error that matters is not that one.
Reading a probability coneA probability cone draws the 1σ and 2σ range a stock could cover by a future date. Built for one chain, it puts a 0.20 delta strike almost exactly on the 1σ edge, which is the useful part. The circularity nobody mentions is the rest of the page.
Building a covered call screenerOne screen over 60 liquid names for a single monthly expiry: 812 call contracts in, 4 out. The drop count at every filter, which two do most of the work, which one is nearly free, and the single line that removed 12 of the last 19 candidates.
Liquidity screening, and what to rejectTwo thirds of the contracts at the right delta were untradeable. The three numbers that catch them, the thresholds worth using, and the candidate whose 21.7 percent annualized return became 14.5 percent the moment you tried to sell it.
The bid-ask spread, quantifiedNobody itemises the spread, so nobody counts it. Priced across one covered call held for a year, a spread that passed the liquidity filter costs 6.5 percent of the income, and a wide one costs a quarter of it, against a theoretical edge of 1.5 percent a year.
Fill probability, and the price of impatienceNobody publishes a fill-rate curve for retail option orders, so this page does not invent one. What it has instead: what each penny of concession is worth on one contract, why the mid is not a fair price on a skewed market, and the floor to set before you start.
A good setup against a bad oneNine textbook checks, unranked and unweighted, run against three real candidates from one screen. Two of them fail on something a screener already caught. The one that passes still leaves the most important question unanswered.
The dates that should veto a tradeTwelve of the nineteen highest-yielding contracts on one screen had an earnings print inside the expiry window, and half the premium on the top-ranked one was that single date. The ex-dividend veto everyone teaches turns out to fire almost never, and the arithmetic shows exactly when it does.

Read them in this order

If you want the probability half: the two numbers that describe the same trade, then what the delta column is really claiming, then why the expected value is zero. Those three change how you read a chain.

If you want the selection half: the funnel with the drop counts, then the filter that removed two thirds of the field, then the one line that removed 12 of the last 19.

One screen, ten articles

Every number here comes off a single illustrative run: Tuesday March 3, 60 liquid names, the April 17 monthly expiry, 45 days out. Eight hundred and twelve call contracts went in and four came out. The one the series follows is a Cisco $64 call at $0.62 against stock at $58.40, with 82.3 percent keep-odds, 35.3 percent touch-odds and 8.6 percent annualized. Every price, delta and probability was computed through Black-Scholes at 4.2 percent rather than asserted.

What this series will not tell you

That a high win rate is an edge. The expected value of the short call is zero, and the 82 percent of trades that work are exactly paid for by the 18 percent that give back an average of $356. That is not a flaw in the strategy. It is what a fairly priced option is.

It also will not tell you the premium is the signal. On this screen the two highest-yielding candidates failed on liquidity and on an earnings date, and the lowest-yielding one passed every check. Ranking by annualized return ranks by risk, with extra steps.

And it will not explain how the OptionsKing confidence score is computed. The evaluation page publishes textbook checks, unranked and unweighted, with no total at the bottom, precisely because a weighting would be an opinion wearing a number's clothes. What the engine does stays private: the score feeds a ranking and the app shows you the highest-ranked handful of what it found, and how it works covers what that guarantees.

Questions people actually ask

What is the difference between probability of profit and probability of touch?

Probability of profit is the chance the option finishes out of the money. Probability of touch is the chance the stock trades through your strike at any point first. The second is almost exactly twice the first, and it is the one that predicts how the trade will feel.

Does a 0.20 delta call really keep the premium 80 percent of the time?

On the worked chain, 82.3 percent. Delta overstates assignment risk by two to four points at every strike, so the shortcut is conservative for a seller. Run it across eight cycles a year and the odds of a year with no assignment at all are 21 percent.

How do I screen for covered calls?

A delta band, hard liquidity thresholds, a low floor on annualized return, and a veto on earnings inside the window. One run over 60 names for a single expiry took 812 contracts down to four, and the earnings line alone dropped 12 of the last 19.

Is selling options a positive expected value trade?

Not from the option itself, which prices to zero. The edge is implied volatility running above realized, worth about $86 a year on the worked position, and a wide bid-ask spread can take all of it.