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The TPI shows the rate of change over a certain time period, along with the standard deviation over a longer time period.
Here is what the 5 day TPI looks like, and it shows that, for $TSLA it's the worst 5 day selloff other than the March crash.
Here's where it gets fun...
We're 5 days into a nasty selloff in $TSLA
There are 10 days left to September options expiration.
So instead of looking at a 5 day TPI, we can look at a 15 day TPI
We're 5 days into a nasty selloff in $TSLA
There are 10 days left to September options expiration.
So instead of looking at a 5 day TPI, we can look at a 15 day TPI
Within that 15 day window, $TSLA tends to "bottom" around -22%.
During the March crash the worst 15 day window was -53%
During the March crash the worst 15 day window was -53%
Based off past price movement, we know that anything between -22% and -53% is pretty extreme...
And within the past 5 days, $TSLA has dropped 33%.
This is where it gets fun...
And within the past 5 days, $TSLA has dropped 33%.
This is where it gets fun...
Assume that another 50% drop is pretty low odds.
Anything can happen of course, but in terms of statistics we know it doesn't happen very often.
Anything can happen of course, but in terms of statistics we know it doesn't happen very often.
50% off the highs puts us around 270.
And just so happens to coincide with the Jul/Aug range lows.
And just so happens to coincide with the Jul/Aug range lows.
Now this is where it gets fun.
The 270 put that expires in 10 days has a premium of 8 bucks and a delta of 18%
That means the implied odds give it an 18% chance that $TSLA will be lower than that level.
The 270 put that expires in 10 days has a premium of 8 bucks and a delta of 18%
That means the implied odds give it an 18% chance that $TSLA will be lower than that level.
We've already established the statistical extremes that $TSLA has seen in the past
You now have context.
You now have context.
And with the options market pricing in 18% odds, the question then is... is that higher or lower than previous price action?
After all, only a few samples have seen pushes down to those levels before.
After all, only a few samples have seen pushes down to those levels before.
From there you can look to structure options trades that sell the implied move because we have a better edge with the TPI.
Of course, things can go terribly wrong so manage your risk, have stops, etc.
Yet this case study can show you how the TPI can put probabilities on your side.
Yet this case study can show you how the TPI can put probabilities on your side.
The TPI is free on tradingview, and you can download it for thinkorswim here: https://reports.investingwithoptions.com/free-indicator-signup-a
Standard disclaimers apply here, I'm not your b/d, do your own DD, there's no guarantees in life, and you can lose all your money trading options.
