Probability Evaluation in Trader+

I have learned some important things about tools I thought were missing from Trader+ that I use every time I evaluate a covered call options trade in Active Trader Pro (ATP). The probability tools can help you make money on covered call option trades and reduce the likelihood that your dividend growth investments will be called away. I want to make money using covered call options and avoid losing my shares most of the time.

Two Concerns about Trader+ Capabilities

I shared these comments in the Fidelity Investor Community: “I did an options trade on Trader+ yesterday. To say it was more cumbersome than ATP is an understatement. Furthermore, there are key features of ATP that I cannot find in Trader+ that were most helpful in my trading decisions. I don’t want to spend more time entering options trades, I want to spend the same amount I spend in ATP or less time. That doesn’t seem to be a consideration in the new software.”

Examples that I gave were: 1) To be able to see order flow activity, and 2) To have a “Prob. Below” value to judge the likelihood that the option will exercise on “April xx.”

I wasn’t overly optimistic, but “FidelityShea” responded. He had some helpful suggestions.

What FidelityShea Suggested

“Hey @waynew, just wanted to chime in here quickly because I have some good news: these features are currently available in Fidelity Trader+ Desktop.” For #1, after selecting “Tools” in Fidelity Trader+ Desktop, you’ll find both “Level 2” and “Times & Sales” tools under the “Market Data” header.

“We also have a probability calculator available in the “Options Chain” tool for #2. When you have the “Multi-select” box checked in the upper-right corner of the tool, selecting a bid or ask for a given contract will pull up a custom strategy section that shows additional data points. You’ll click “Show calculator” to be able to update the calculation date being used.” – FidelityShea

What Does It Look Like?

Here is an example of the probability screen.

This is not the same as the probability in Fidelity Active Trader Pro. If the FNF shares are trading below the $50 contract price, and I want $50 for my shares, it is reasonably unlikely that the price will rise to $50 from $46.18. Even if that happens, I will not lose money. I keep the $65.00 from the option sale and I get the $5,000 for my shares ($50 x 100 shares = $5,000.)

The “Max Loss” says “Unlimited.” However, that is, in my opinion the wrong way to think about this. It is certainly true that the shares could run up to $60 by May 15. I’d still have to sell them at $50 per share. So there would be a “loss” in the sense that I could have made even more of a profit by waiting and then selling my shares at $60. On the other hand, if I was willing to sell at $50 then I made the profit I was willing to take on the trade.

I then asked FidelityShea what does the “probability” mean? How is it determined? He responded to that question as well.

Probability of Profit Matters

“The Probability of profit is based on a hypothetical calculation including underlying price, days to expiration, Historical Volatility (90), and the breakeven of the contracts, the probability that the underlying will be in a position that will potentially profit at expiration.” – FidelityShea

He went on to say: “You can find the calculations for tools like the one we discussed, along with other definitions, by clicking the “i” symbol in the top-right corner of your Fidelity Trader+ window. From there, select “User guide.” Similar to this, we have a link on Fidelity.com as well, that I’ve linked below.” – FidelityShea

Fidelity Trader+ User Guide

This is a link to Fidelity’s User Guide: TRADER+ Help Guide

What Constitutes Success?

Are the Options ITM or OTM?

If a covered call option expires in the money, the shares will be sold at the strike price, and the call premium is kept as income. The investor receives an assignment notice, and the stock is sold at the effective price, which is the strike price plus the call premium. I try to avoid this using the probability function in Trader+.

When a covered call option expires out of the money (OTM), it becomes worthless, allowing the seller to keep the premium received from selling the option and retain ownership of the underlying shares. This scenario generates maximum profit from the covered call strategy. This is where I want to be: OTM.

Online Trader+ Training Videos

If you search for Trader+ training on YouTube for the Desktop version of the software you can learn more about the capabilities of Trader+. I plan to watch more of them in the future.

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