In poker, pot odds are the ratio of the current size of the pot to the cost of a contemplated call. 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.