We Are Playing to Win
One thing that I’ve always tried to emphasize is that we are not in the business of prediction. Leave that to the gamblers, leave that to the Reddit Bros, leave that to the trading discords and online options gurus: don’t forget that 80-90% of options traders lose money. I sleep well at night by understanding that we have the probabilities in our favor. Our edge is because realized volatility typically comes in below implied volatility. By doing the little things correctly, trade after trade, week after week, month after month, we are playing the percentages and achieving consistent results. It is not necessarily exciting. Admittedly, buying a long call and having it 10X is exhilarating and fun; however, it is low percentage and I lost a lot of money playing that game. In order to win, they are gambling that they can predict the direction, the magnitude and the timing correctly. This is a losing game. We are the house, we are the casino. Sure, being the house is not that interesting, it’s not that fun, but it is profitable! The hotels and casinos in Las Vegas are uber nice because they make extraordinary profits. Of course, the books are written about how to beat the house. The videos online teach you to hone your strategy to beat the house, but the reality is, the house ultimately wins.
When I was growing up playing tennis, we were taught the concept of playing the percentages. This basically means take the highest probability shots the majority of the time and let your opponent take chances. In tennis, that means a lot of topspin and hitting cross court predominantly. In options trading, that means selling options at the 85% probability of profit. Lesson 9 explains probability of profit, delta, and how those translate into strike prices. Again, we do not need to predict what the market is going to do in order to make money. In fact, trying to predict the market is often what makes options trading unnecessarily complicated. Traders look at charts, economic reports, earnings announcements, technical indicators and breaking news and then try to determine whether a stock is going up or down, how far it might move and when that move will happen. We take a different approach. We use options Delta, probability of profit and Out of The Money strike prices to create trades where the statistical odds are already working in our favor. This is one of the central ideas behind the Put Path Options Trading System. The objective is not to eliminate losing trades. That is impossible. The objective is to structure trades so that losses are relatively infrequent (less than 1 out of 6 trades), defined in advance and manageable when they occur. Once you understand that distinction, options trading begins to look less like a prediction contest and more like a process of managing probabilities, and that is where delta becomes one of the most useful tools in the options trader’s toolbox.
The Problem With Trying to Predict the Market
Consider what a traditional options buyer has to get right in order to be profitable. Now some options buyers are just buying insurance, hedging against their long positions, but say you actually thought you would be profitable. In this Put example, you believe a stock trading at $100 is going to fall. You could buy a $95 Put, but simply being correct that the stock will eventually fall is not enough. You also need the stock to fall far enough to overcome the premium you paid, and it needs to do so within the remaining time before expiration. In other words, the buyer has to be right about direction, magnitude and timing. That is a lot of variables to get right simultaneously. The market does not make this easy. A stock will move in the opposite direction that you predict about 50% of the time. The stock can move in the direction you predicted and you can still lose money because the move was too small or happened too late. This is one reason options buyers are attracted to the excitement of large potential gains but often discover that consistently making money is much harder than it appears. The Put Path starts from a different premise. Rather than asking, “Where is this stock going?” we ask, “How far does this stock have to move before my trade becomes unprofitable?” That is a much different question. It moves the focus away from forecasting and toward probability, risk management and trade structure.
This is also why the Put Path emphasizes diversified underlyings rather than trying to find the next stock that is going to explode higher. The system uses QQQ, GLD, IWM, IBIT, SPY, USO, DIA, IYR, SMH, TLT, XBI and VIX because each provides a different combination of liquidity, market exposure and diversification. We are not trying to identify the one perfect trade. We are creating a collection of trades where no single market prediction determines the outcome of the entire portfolio. That philosophy is important because probability only becomes powerful when you give it enough opportunities to work. One trade tells you almost nothing. Ten trades tell you a little more. Hundreds or thousands of trades begin to reveal whether a process actually has a statistical advantage. This is the same reason a casino does not worry about winning every individual hand of blackjack. The casino understands that its edge is realized over a large number of independent outcomes. They set max bet limits in order to reduce outlier exposure and encourage the gamblers to make as many bets as possible. Options trading is not blackjack, but the underlying concept is useful: if you have a repeatable statistical edge, you want to make enough appropriately sized trades for that edge to have an opportunity to show up over time.
Delta Is More Than a Number on an Options Chain
This brings us to Delta. Delta is one of the most important numbers you will encounter when looking at an options chain, but beginners often treat it as just another column of data. In the Put Path, Delta has a much more practical purpose. It helps us determine where to place our short Put, which is our profit driver. For a Put option, a negative 0.15 Delta is approximately associated with an 85% probability of expiring OTM (Out of The Money) under the assumptions embedded in the options pricing model. If we sell a 15 Delta Put, we are deliberately choosing a strike price that is relatively far away from the current price of the underlying. We are giving the market room to move before the short strike becomes threatened. That distance is the safety margin built into the trade. The exact relationship between Delta and probability is not a guarantee, and actual outcomes can differ significantly from theoretical probabilities, but it provides a useful framework for selecting strikes consistently rather than simply picking a strike because it “looks safe” or is a certain percentage down from the current price.
Think about an ETF trading at $100. If the 15 Delta put is at $90, you have created a significant amount of room between the current market price and your short strike. The underlying can decline substantially without immediately threatening the position. If you moved your short strike closer to $95, the premium would increase because you are taking on more risk. But your probability of profit would decline. If you moved the strike all the way down to $80, your probability would increase, but the premium you receive would become prohibitively smaller and eventually goes to $1 or $0. This is the fundamental tradeoff between probability and premium. There is no magic strike price where you simultaneously receive enormous premium and have a 99% probability of success. The market prices risk. The farther away you go, the less premium you receive. The closer you get, the more premium you receive and the more risk you accept. The Put Path has settled on approximately 15 Delta because, based on the real world trading experience behind the system, it provides what we believe is a profitable balance between probability and meaningful premium.
That distinction is important. A 95% probability trade can sound better than an 85% probability trade, but higher probability does not automatically mean more profits. Suppose you could sell an option with a 95% probability of profit and collect $10. You could potentially win nine or ten trades in a row and feel like a genius. Then a single large loss of $150 could erase those gains. Now compare that with an 85% probability trade that collects $40 or $50. You will experience slightly more losses, but the winner’s premium are meaningful enough to absorb them over time. The goal is not to maximize the winning percentage. The goal is maximize profit: to create a favorable relationship between probability, premium and risk. This is one of the reasons the Put Path does not chase extremely high probability trades simply because the number looks attractive. The objective is profit, not perfection.
Why OTM Put Credit Spreads Change the Equation
Once you understand Delta, the next important concept is moneyness. An option can be ITM (In The Money), ATM (At The Money), or OTM (Out of The Money). For Put Path trades, we live in the OTM portion of the options chain. That is intentional. An OTM put has no intrinsic value because the underlying is trading above the strike price on the Put. When you write an options contract, what you are selling is primarily time value and volatility premium. If the underlying remains above your short strike, that premium decays as expiration approaches (this is called Theta Decay). Time becomes an ally rather than an enemy. This is one of the fundamental reasons selling options can be attractive. An option buyer needs the market to move in their direction, quickly enough, to overcome the premium paid. The option seller can potentially profit simply because the anticipated move never occurs, or doesn’t occur quickly enough. The passage of time gradually reduces the value of the option, assuming other factors do not overwhelm that effect.
The Put Credit Spread adds another important element: defined risk. Rather than selling a naked put and accepting potentially substantial downside exposure, the Put Path buys a lower strike Put at the same time for protection. That long Put establishes a maximum loss. For example, a $5-wide spread has $500 of width per contract. If you receive a $40 credit, your maximum theoretical loss is $460 before considering transaction costs. Now don’t get hung up on your max win, max loss ratio. Think about naked options, your max loss is effectively infinite. All that protective Put is doing is allowing you to trade with less capita, less buying power reduction. You are still going to close out these trades at a 2X stop loss trigger. Now, defined risk does not mean no risk. A Put Credit Spread can still lose money, and we typically will lose about 15% of the time. The system uses a 2X stop-loss trigger as another layer of risk management, and the strategy requires closing losing trades rather than endlessly rolling or adjusting them. This is where probability and discipline have to work together. An 85% probability of profit does not give you permission to ignore a losing position. It gives you a framework in which losses are expected and manageable when you follow the rules. The system is designed around small position sizes, diversified underlyings and repeated opportunities rather than putting a large portion of the account on one prediction.
Put the Probability to Work for You
The real advantage of understanding Delta is that it turns trade selection into a repeatable process. You do not have to sit down every week and invent a new strategy. You already know all the answers to the test: What underlyings am I trading? How many days are left until expiration? Where is the 15 Delta put? What is my Spread Width? What lot size? What premium is my target? Is the market offering a reasonable setup? The Put Path simplifies these decisions: 12 diversified underlyings, 15 Delta, 28–32 DTE, $5-wide spreads and appropriately sized positions. During the week, the 1% Rule can provide another useful filter by identifying underlyings that have experienced a meaningful decline and may therefore have expanded option premiums and greater distance to the 15 Delta strike. Instead of constantly searching for something to trade, you are waiting for the market to present a Set Up that fits the rules.
Most importantly, remember that probability is not a promise. An 85% probability trade can lose. In fact, it should lose nearly 1 out of 6 times. If you make 100 trades, you should not expect exactly 85 winners and 15 losers. Real world results will fluctuate. You may have a great month. You may have a terrible week. You may experience several losses cluster together. We could experience the dreaded Black Swan Event. Some years I have achieved around 82% Win Rate, others have been around 89%. The point is that a probability based system gives you a framework for handling those outcomes without abandoning your strategy every time the market behaves unexpectedly. That is where discipline becomes more important than prediction. The Put Path is not designed to guarantee income, eliminate losses or predict every market move. It is designed to create a repeatable process in which probability, defined risk, diversification, position sizing and disciplined trade management all work together.
Stop Predicting and Start Playing the Probabilities
The most important lesson about options Delta is not the number itself. It is the change in mindset that comes with understanding what the number represents. Instead of asking which stock is going to rise tomorrow, you can begin asking where the market believes the probability distribution lies. Instead of trying to predict the exact direction, magnitude and timing of a move, you can sell an OTM Put Credit Spread with a neutral viewpoint and give the market room to move. Instead of concentrating your account on one idea, you can diversify across multiple underlyings and asset classes. Instead of hoping every trade works, you can accept that losses are part of the process and rely on position sizing and probability to work over a sufficiently large number of trades.
If you want to see whether that philosophy actually holds up in real trading, don’t just take my word for it. Visit The Score and look through the historical trade log. Put Paradise makes the trade history available so you can see how the framework has performed across different market environments rather than relying on theoretical back testing or a handful of cherry-picked examples. You can also create a free account to access the Real Time Trades and see how the Put Path is applied in actual market conditions. The next step is not to predict what the market will do tomorrow. The next step is to learn the process, understand the probabilities and decide whether this approach fits the way you want to trade. Spend less time on screens. Less gurus. Less meaningless research and prediction. Follow the process. Let probability do the heavy lifting.
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