The probability calculator utilizes the Black Scholes formula (Nobel Prize winners in Economics). The formula indicates (in terms of percentage) the probability of any market moving from its present price, "Stock Price" to another price, "Strike Price" within a defined period of time.
When an option is ATM ("at-the-money"), the chances are 50% that a market will go up, and consequently, a 50% chance that it will go down. So, any OTM ("out-of-the-money") option must have less than a 50% chance of being reached. The farther away the option is OTM, the lower the probability of it being reached within a certain time period. Conversly, any ITM ("in-the-money") option must have greater than a 50% chance of being reached. The further the option is ITM, the higher the probability of it being reached within a certain time period. |