Implied probability, also known as "risk-neutral probability", is a concept that quantifies market participants' expectations about future events. It's derived from market prices, specifically those of derivatives like options. These prices are influenced by the collective beliefs of traders regarding potential price movements of the underlying asset.
Imagine a stock trading at $100. A call option with a strike price of $110 and an expiration date in one month might be priced at $5. This option gives the buyer the right, but not the obligation, to buy the stock at $110 in a month. T....
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