Interactive Brokers / Options / Probabilities

Interactive Brokers (Nasdaq: IBKR) is the best brokerage out there that is available to the retail level. They give me a degree of comfort that simply doesn’t exist in any other brokerage firm that I have dealt with. One of the reasons for their superiority is their founder, Thomas Peterffy, continues to push the innovation curve in such a manner that makes the firm cutting-edge.

The company is publicly traded and has been on an unsual uptrend over the past few months:


The only reason why I have never put money in them is because the publicly traded entity is essentially a minority slice (12.4%) of the “true” asset and this creates all sorts of perversions of incentives that are not necessarily in shareholders’ best interests. It is a classic case of the underlying business being fantastic but the stock not necessarily being a good investment.

Anyhow, they have a tool that is relatively easy to utilize that highlights potential option strategies given the differences between the market’s implicit probability distribution and your own personal expectation of outcomes. Although I do not trade options very often (indeed, it is very rare that I do so simply because trading options is quite costly in terms of spread), this tool and this explanation is quite intuitive. If you do not understand how options are priced, this is a pretty good tutorial that avoids math.

Clearly understanding the math helps and I would highly recommend people learn some option pricing theory before considering trading them. Putting it mildly, options are a fantastic way of losing money if you don’t know exactly what you are doing. Options also appeal to gambler-types that love seeing huge rewards in total disproportion to the amount risked.

2 thoughts on “Interactive Brokers / Options / Probabilities”

  1. I would like to use this tool in a practice account for a period of time before I would then possibly swith to a funded one.

  2. “Options also appeal to gambler-types that love seeing huge rewards in total disproportion to the amount risked.”

    Funny, I see it exactly the other way around. Most people who trade stocks have no idea about the amount of risk they are taking on and often are completely oblivious to fat tail events. Options are THE way to REDUCE risk.

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