Step 1: A current price of 1110.70 and a statistical volatility of 12.3% were used as the inputs to calculate the 1st, 2nd and 3rd standard deviations of price movement over the next 32 days (April of 2004 expiration date for SPX options).

Step 2: Using strike prices close to the 2nd standard deviation prices as targets, a probability of finishing between the targets is calculated.

Step 3: After viewing the Matrix of current option prices and using the TradeFinder (or a little trial and error), the following trade was determined as a viable opportunity with a high probability of profit and a reasonable expected return.

As can be seen in the Graphic Analysis above, the expected return (E.R. in lower left corner) is $1,193 with a 94% probability of profit (P.P. in lower left corner) and the trade would require $28,800 of capital to meet the margin requirements for both credit spreads. The actual risk to capital is less than half that, or $13,800, as only one "side" could effectively expire in-the-money. Many brokers will require this lesser amount held for margin as it is the maximum risk of the trade.

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