OptionAutomator Options Trading Glossary:

Definition, Examples & Resources:Probability of Touch [POT]'

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What is Probability of Touch [POT] in Options Trading ?

Probability of Touch [POT]
The Probability of Touch refers to the chance the stock price will touch or surpass the strike price of the option prior to or at expiration. This chance, measured as change relative to the option’s underlying stock price and the options' greeks as derived from Black-Scholes.   The probability of touch can be estimated without using the Black Scholes model as twice the value of the option's delta in percentage terms.

How to Use in Your Brutus Options Ranker Strategy

The Probability of Touch indicates the chance an options setup will reach its breakeven point before expiration. 

When using net-short setups, you will want to minimize the probability of touch, as you are trying to keep the position out of the money prior to expiration.

When using net-long setups, you will want to maximize the probability of touch to ensure you have the greatest chance that the position will be in the money at some point in the trade cycle.

Broader Term

  • Black-Scholes

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