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Suppose I have a probability distribution for the return of a given stock from now until some expiration date. Is there any algorithm/process/software that will take that probability distribution and tell me the specific options trade (which strike prices and how many contracts at each strike to buy) that will give me the best performance (in terms of return or risk-adjusted return)? There are so many possible combinations of trade types (straddles, spreads, butterflies, etc) and strikes that it seems impractical to brute-force search.

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  • $\begingroup$ Say you were to approach this with brute-force... what would make one options trade better than another? $\endgroup$ – Jared Jan 24 '17 at 1:32
  • $\begingroup$ @Jared a better sharpe ratio, for example, when the option's performance is simulated according to the given return distribution for the underlying security $\endgroup$ – Marko Bakić Jan 24 '17 at 1:51

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