OptionEV Tutorial
Learn to trade options with mathematical precision using Expected Value analysis. This comprehensive guide will teach you everything you need to know about positive EV trading and how to use OptionEV's powerful tools.
1. What is Expected Value?
The Foundation of Professional Trading
Expected Value (EV) is the average profit you can expect from a trade over the long term. It's calculated by weighing all possible outcomes by their probability of occurring.
Positive EV Trade
Mathematical edge in your favor
Over many trades, you profit on average
Negative EV Trade
Mathematical edge against you
Over many trades, you lose on average
Simple Example:
Coin Flip Bet: You win $2 on heads, lose $1 on tails
• 50% chance to win $2 = +$1.00
• 50% chance to lose $1 = -$0.50
Expected Value = +$1.00 + (-$0.50) = +$0.50
Options Example:
TSLA Call Spread: Cost $75, Max profit $250
• 30% chance to profit $175 (max profit - cost) = +$52.50
• 70% chance to lose $75 (full cost) = -$52.50
Expected Value = +$52.50 + (-$52.50) = $0.00 (Break-even)
2. How to Trade Options with Positive Expected Value
The Professional Approach
Professional traders don't guess or rely on gut feelings. They systematically find and execute trades with positive mathematical edges.
The EV Trading Process:
1. Find
Screen for positive EV opportunities using probability models
2. Validate
Confirm the EV calculation and risk parameters
3. Manage
Monitor and exit at optimal times using Hold/Exit signals
Key Principles:
- Only trade positive EV: Never enter trades with negative expected value
- Size appropriately: Risk management is crucial even with positive EV
- Think long-term: Individual trades can lose, but positive EV wins over time
- Stay disciplined: Stick to your EV analysis, don't chase losses
Pro Tip:
Focus on EV ROI % rather than absolute dollar amounts. A $10 EV on a $50 trade (20% ROI) is better than $15 EV on a $100 trade (15% ROI).
3. Debit Spreads vs Naked Options and Expected Value
Why Debit Spreads Often Have Better EV
Debit spreads typically offer superior risk-adjusted returns compared to naked options because they provide defined risk with less capital at risk.
Debit Spread Advantages
- Lower cost basis: Less capital at risk
- Defined max loss: Risk is capped
- Better ROI potential: Higher percentage returns
- Less time decay: Short leg partially hedges
Naked Option Challenges
- Higher cost: More capital at risk
- Unlimited risk: Losses can exceed premium
- Lower ROI: Needs larger moves to profit
- Time decay: Works against you every day
Real Example Comparison:
| Strategy | Cost | Max Profit | Max Loss | Expected Value | EV ROI |
|---|---|---|---|---|---|
| AAPL Call Spread 195/200 Call Spread |
$125 | $500 | $125 | +$18.75 | +15% |
| AAPL Naked Call 195 Call |
$350 | Unlimited | $350 | +$12.25 | +3.5% |
Why Spreads Win:
The call spread has better EV ROI (15% vs 3.5%) with lower capital requirements and defined risk. You get similar directional exposure with better risk-adjusted returns.
4. How to Use the Manual EV Calculator Tool
Step-by-Step Calculator Guide
The Manual EV Calculator lets you analyze any options trade with real-time market data and precise EV calculations.
Step 1: Enter Basic Information
- Symbol: Enter the stock ticker (e.g., AAPL, TSLA, SPY)
- Expiration Date: Choose your target expiration
- Spread Type: Select from:
- Debit Call Spread (bullish)
- Debit Put Spread (bearish)
- Naked Call (bullish)
- Naked Put (bearish)
Step 2: Set Strike Prices
For Call Spreads
Strike 1 (Long): Lower strike - You buy this call
Strike 2 (Short): Higher strike - You sell this call
For Put Spreads
Strike 1 (Long): Higher strike - You buy this put
Strike 2 (Short): Lower strike - You sell this put
Step 3: Analyze Results
The calculator will show:
- Expected Value: Per-contract profit expectation
- EV ROI %: Return on investment percentage
- Breakeven Price: Stock price needed to break even
- Profit/Loss Chart: Visual representation of outcomes
- Greeks: Delta, gamma, theta analysis
5. How to Use the AI Trade Finder Tool
Automated Positive EV Discovery
The AI Trade Finder automatically scans 500+ stocks to find the best positive EV opportunities, saving you hours of manual analysis.
How It Works:
Real-Time Scanning
Analyzes live options chains across 500+ tickers
EV Calculation
Computes expected value for thousands of spreads
Smart Ranking
Ranks by EV ROI % and filters quality trades
Using the Tool:
- Access the Tool: Navigate to "OptionEV AI Trade Finder" in the menu
- Choose Parameters:
- Spread type (Call/Put spreads)
- Days to expiration range
- Minimum EV threshold
- Review Results: Trades are ranked by EV ROI %
- Analyze Details: Click any trade to see full EV breakdown
- Execute: Use the data to place trades in your broker
Pro Features
- Real-time IV data
- Earnings calendar integration
- Risk filtering
- Expected move analysis
Understanding the Results Table:
| Column | Meaning | What to Look For |
|---|---|---|
| EV ROI % | Expected return on investment | Higher is better (>15% is excellent) |
| EV ($) | Expected value per contract | Must be positive |
| Cost | Capital required per contract | Manage position sizing |
| DTE | Days to expiration | Balance time vs premium |
6. How to Read the Trade Journal and Hold/Exit Column
Smart Trade Management
The Trade Journal doesn't just track your trades—it provides real-time Hold/Exit signals based on advanced probability models to help you optimize your exit timing.
Setting Up Your Trade Journal:
- Add a Trade: Click "Add New Trade" button
- Enter Details: Symbol, strikes, expiration, entry price
- Save: Trade appears in your journal with live pricing
Understanding Hold/Exit Signals:
HOLD
Meaning: Expected value of holding exceeds exiting now
Action: Keep the position open
EXIT
Meaning: Better to exit now than continue holding
Action: Consider closing the position
NEUTRAL
Meaning: Hold and exit values are very close
Action: Use other factors to decide
Advanced Features:
Profit/Loss Tracking
- Real-time P&L updates
- Percentage returns
- Breakeven analysis
- Days held tracking
Monte Carlo Analysis
- Thousands of price simulations
- Time decay modeling
- Volatility impact assessment
- Optimal exit timing
Pro Trading Tip:
The Hold/Exit signals help you avoid common psychological traps like holding losers too long or exiting winners too early. Trust the math, not your emotions!
Trade Journal Columns Explained:
| Column | Description |
|---|---|
| Symbol | Stock ticker and spread details |
| Entry Date | When you opened the position |
| DTE | Days remaining until expiration |
| Entry Price | What you paid per contract |
| Current Price | Live market value of your spread |
| P&L | Unrealized profit/loss ($ and %) |
| Hold/Exit | AI recommendation: HOLD, EXIT, or NEUTRAL |
| Actions | Edit, close, or analyze trade |
Ready to Start Trading Smarter?
You now have the knowledge to trade options with mathematical precision using Expected Value analysis. Here's your action plan:
Your Next Steps:
- Start with the Manual Calculator to analyze specific trades
- Use the AI Trade Finder to discover opportunities
- Track everything in your Trade Journal
- Follow the Hold/Exit signals for optimal timing
- Focus on positive EV trades only
Remember:
- EV is your statistical edge
- Debit spreads often have better EV ROI
- Consistency beats home runs
- Math beats emotions every time