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Option trading has another risk aspect attached to it. Today’s article will explore that in detail. While trading options, many individuals evaluate the mathematical probability of a particular trade. From my experience as an option trader, I take the “Comfort Zone” into consideration. Let us understand the benefits of the Comfort Zone.

The Comfort Zone has two advantages to it. First, the Comfort Zone lets me relax as my trade option position is secure. Secondly, the option lets me make money. This video explains the traditional Iron Condor. When we look at it, one thing is clear. The probability of trade staying in the Comfort Zone is very less, which is 36%. However, the probability of the trade leaving the Comfort Zone is 83%. This implies that this trade is very risky as the trade has a higher probability in the “Danger Zone” than in the Comfort Zone.

From observing the Calendar Spreads and ATM Butterflies, one can easily state that the Comfort Zone they hold is similar to that of the Iron Condor. An unstable market can make these trades very difficult to manage. It is not only because these trades have a very small Comfort Zone but it is also because of the fact that the stock market does not move sideways too often. In this video, if you see the price chart, you will notice that the marked moved sideways only 3 to 4 times during the last 12 months.

On the contrary, over the last year, the stock market moved up and down from 10 to 12 times. This trend enables us to predict a vertical movement more confidently and consistently. Having analyzed this, we infer that more bullish and bearish trades were prevalent in the last 12 months compared to neutral trades. So, we can expand our Comfort Zone probability to approximately 85% by constructing bullish and bearish trades. In addition to giving us increased opportunities for trade in one year, this gives a broader Comfort Zone that increases our returns and decreases our stress.

So, the Comfort Zone can be defined as the “Realistic Probability” of a given trade option. The probability of the Comfort Zone that is shown in the software is too less to achieve success on a long-term basis.

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