Great catch — the way I wrote it is misleading. The $425 is the max loss (spread width minus premium), not the average loss on losing trades. If every loser was a max-loss trade, you'd be right — heavily negative EV.
In practice, most of the 28% of losers are partial losses. You close at your stop (-$150 to -$200 on a $500-wide spread) or the spread expires slightly in the money (-$100 to -$250). TBH, only about 5-8% of all trades hit full max loss.
So the average loss on losing trades is closer to $175, which gives you:
0.72 × $75 - 0.28 × $175 = +$5 per spread
That +$5 is thin — which was point of my Three-Engine post (regime sizing). The edge is real but small, and it only compounds through volume (and discipline, of course!), not through any single trade being a home run.
I'll update the post to clarify the distinction between max loss and average loss. Thanks for catching this!!
Ahhh yes ok makes sense - I myself have closed many spreads prior to their total collapse. If I had thought about it for 20 more seconds I probably would have figured it out.
have read/watched multiple articles & videos on Odte and this is amongst the best one yet...as always, great content & importantly - easy to digest....thanks again fella
Hey there - help me out with the math on trade 1 :
“On the 72% of days you’re right, you keep $65-85. On the 28% you’re wrong, you lose $425-435.”
Winning 1 unit 3 days then losing 6 units on the 4th day is a *heavily* negative EV proposition. What am I missing here?
Great catch — the way I wrote it is misleading. The $425 is the max loss (spread width minus premium), not the average loss on losing trades. If every loser was a max-loss trade, you'd be right — heavily negative EV.
In practice, most of the 28% of losers are partial losses. You close at your stop (-$150 to -$200 on a $500-wide spread) or the spread expires slightly in the money (-$100 to -$250). TBH, only about 5-8% of all trades hit full max loss.
So the average loss on losing trades is closer to $175, which gives you:
0.72 × $75 - 0.28 × $175 = +$5 per spread
That +$5 is thin — which was point of my Three-Engine post (regime sizing). The edge is real but small, and it only compounds through volume (and discipline, of course!), not through any single trade being a home run.
I'll update the post to clarify the distinction between max loss and average loss. Thanks for catching this!!
Ahhh yes ok makes sense - I myself have closed many spreads prior to their total collapse. If I had thought about it for 20 more seconds I probably would have figured it out.
wow, great content!
Look at 1 DTE trades. You'd earn the overnight VRP
Oh that’s a fantastic idea.
have read/watched multiple articles & videos on Odte and this is amongst the best one yet...as always, great content & importantly - easy to digest....thanks again fella
Thanks!!