When could we expect consistent profitability of a call options buying strategy given specific statistical assumptions about X% chance of a stock price moving up by Y% within 1-5 days (or Z number of days). And what call options buying trading strategy parameters would be recommended to utilize to achieve such expected profitability?
For example an average casino would have 50.5% - 55.9% odds on Blackjack and be consistently profitable. Not sure if similar expectations can be applied to stock trading (winning average x% y% of the time vs losing average z%) because of large swings in loss percentages unless using stop-loss which then limits the number of times we may win. However, as options can be used to limit losses, I’m assuming there may be a specific way to calculate expected break even point and profitability when trading stock options based on statistically predicting specific stock price increase.
- Can I expect profitably when buying call options given statistical 50% chance of stock A moving up by 6% vs 50% chance of moving down by 3% within 2 days.
- Can I expect profitably when buying call options given statistical 60% chance of stock A moving up by 3% vs 40% chance of moving down by 3% within 5 days.
- Can I expect profitably when buying call options given statistical 60% chance of stock A moving up by 3% vs 40% chance of moving down by 5% within 5 days.
- Can I expect profitably when buying call options given statistical 75% chance of stock A moving up by 3% vs 25% chance of moving down by 10% within 5 days.
As an example of specific stock we can use FB, currently priced at $140.34, with the following options chain: https://finance.yahoo.com/quote/FB/options?p=FB&date=1490918400
Furthermore, because of short-term expectations, I’d like to consider multiple options strike selection approaches:
- a) In-the-money, with intent to sell purchased calls within several days
- b) In-the-money, with intent to exercise them
- c) Near-the-money
- d) Far out-of-the-money, with intent to sell them within several days, for example expecting a \$0.10 option to raise in price above $0.20 (100%) when stock price approaches in-the-money level.
NOTE: I'm looking for layman-level answers in a way similar to casinos explaining their odds. I was thinking about posting this question in http://money.stackexchange.com, but as an answer may require some math and degree of quantitative experience, I decided to post it here with hope that I can still get an answer in the form of basic math vs advanced quant formulas, especially as the answer could be helpful to anyone starting trading options.