A probability cone uses historical option data and a proprietary statistical formula in order to the graph the potential future range for stock prices. Your selection of the probability increment determines the number of arcs displayed on the graph. There is a trade-off between having a narrow range of expected price movement and a high probability of that event. High probability arcs cover the widest range of potential stock prices, while the lower probability arcs cover a narrow potential range of stock prices.

This is illustrated by the following equation and explanations. |
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For the graph view we need to calculate three standard deviation |
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$$ S_d1 = s * v * \sqrt \frac {t}{365} $$ $$ S_d2 = 2 * \left (s * v * \sqrt \frac {t}{365} \right ) $$ $$ S_d3 = 3 * \left (s * v * \sqrt \frac {t}{365} \right ) $$ | ||||

Following below formula calculate positive and negative price by using three standard deviation: $$ p1 = s+S_d1 $$ $$ n1 = s-S_d1 $$ $$ p2 = s+S_d2 $$ $$ n2 = s-S_d2 $$ $$ p3 = s+S_d3 $$ $$ n3 = s-S_d3 $$ |
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Following below formula to calculate the probability touching value. … where N(x) is the standard normal cumulative distribution function. |
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$$ Finishing \space below \space lowest \space target = \frac {N (ln( \frac {x1} {x2}))} {v* \sqrt \frac {t}{365}} * 100 $$ $$ Finishing \space between \space the \space two \space targets = 100 - (Finishing \space above \space highest \space target + Finishing \space below \space lowest \space target) $$ $$ Finishing \space above \space highest \space target = 1 - \frac {N (ln( \frac {x2} {s}))} {v* \sqrt \frac {t}{365}} * 100 $$ |

Variables |

s(218.46) = Stock |

v(6.4) = Volatility(%) |

t(30) = Days ahead |

x1(221) = first target on stock price |

x2(227) = second target on stock price |

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