Pot Odds

In poker, pot odds are the ratio of the current size of the pot to the cost of a contemplated call.[1] Pot odds are often compared to the probability of winning a hand with a future card in order to estimate the call’s expected value. – Wikipedia

So what?  Well, in terms of the year’s market action so far, what are the pot odds that we just keep going higher?  I don’t know the answer to that exactly, nor does anybody else.  But would you buy now with the expectations that you have a huge move still to go on the upside?

My answer is no.  I’ve bee listening/watching to tastytrade quite intently over the past month or so and this idea of pot odds is what gets hammered home on a daily basis.  Take a look at the bond chart for a minute.  Do pot odds favor more upside?

Ok, now look at the Nasdaq…….

The fact that they are both near all-time highs is great, I guess.  But what do the pot odds tell us is most likely to happen next?  Just a thought as it seems something’s got to give.  The relationship between the two is at an all-time extreme, seen below.  Something’s got to give and I am currently short 2 /NQ and 1 /ZB (expecting that this ratio turns less negative).

Stay small and trade the extremes and have a good rest of the week!

P.S. – If you are interested in becoming a member of tastytrade, let me know.  Referrals are rewarded and it will be the best $90 you ever spend.


About thefront9

Independent trader with a flexible approach to the markets. Position trading, swing trading and day trading using Futures, Equities and Options. This site is intended to help others (and myself) see what I see and to stay true to the discipline of making trades at the extremes. Contrarian and TastyTrade addict! Living in Texas with my family, helping others and maybe playing some golf from time to time makes life busy and great. Add a little music and humor and that just about sums it up. Trade the extremes and manage risk.....always!
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