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A Price-Projection Tool Traders Should Know About

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April 15, 2012

Trade Architect’s Probability Analyzer not only determines the theoretical probability of a stock trading within a particular price range, it’s chart candy for gadget addicts.

What do you get when you cross historical price charts and volatility? Enough data for our brilliant dev team to create one of the coolest trading tools on the planet.


FIGURE 1 Trade Architect’s Probability Analyzer from TD Ameritrade presents a graphical representation of price ranges for a particular security. For illustrative purposes only.

THE PROBABILITY ANALYZER tool in Trade Architect trading platform from TD Ameritrade is designed to take historical stock price data and, making assumptions about normal distribution, show the theoretical probability of a stock trading within a particular price range in the future.

Pretty little Figure 1 tells you what the tool projects the stock range will be within 1 or 2 standard deviations (which is geek-speak for where results are expected to fall 68% or 95% of the time). The higher edge of the shaded “cone” defines the top of the range. The lower edge of the cone is the bottom of the range.

An inkling of the possible range of the stock price may help as you decide where to place a protective stop order on a long stock position, for example. You could then check to see whether the price points that you determined from technical or fundamental analysis are in line with what the market’s recent volatility shows. Cool, huh?

Try This On For Size

Suppose you own 100 shares of a stock and you’re looking to sell a covered call against it. (Covered calls are an option strategy composed of long stock and a short call option.) You understand the risk of having the stock called away, but you’d still like to take advantage of collecting some premium from the sale of the call. One method for picking the option strikes might be to use the Probability Analyzer to help you choose. Here’s how:

1. FIRE UP TRADE ARCHITECT by logging in to your account at Then go to Trading Tools > Trade Architect. Then click the big green launch button in the center of the screen.

2. CLICK ON THE QUOTE TAB at the top, then on the right, select “Probability Analysis” from the View menu.

3. ENTER THE STOCK SYMBOL in the fill in box to the left of the “Go” button top right, and a new probability analysis of your stock will appear.

4. GO OUT THE NUMBER OF DAYS until expiration of the call option you’re thinking of selling (say, 1-2 expiration months out) and line up the stock price at the top line of the middle range (the 1 standard deviation line).

5. USING THE RANGE AS YOUR GUIDE, sell the call strike that you feel comfortable with based on the probability range.

6. IF THERE IS NO PREMIUM TO SELL, then you may want to adjust your strategy by selling a call closer to the current stock price or simply selling a call that expires further out in time. However, bear in mind that both of these choices increase the risk of your stock being called away.