Option Wizard® Simplified Options Strategy (SOS) Backtester shows that despite earthquakes, tsunami's and nuclear catastrophes, probabilities prevail

On Wed. March 16, 2011, we used the new Option Wizard® Simplified Options Strategy (SOS) Backtester to determine some expiration probabilities for SPY.

Previous close: SPY 128.56 Tues Mar 15, 2011

THE PROBABILITIES FOR SPY CLOSE 2 DAYS LATER:

136	0.79%
134	1.97%
132	6.71%
130	22.11%
128	54.64%
126	11.69%
124	4.11%
122	1.66%
120	0.95%
118	0.63%

So where did it close, Friday, March 18, 2011 -- options expiration?

127.76

Very near our highest probability 128, which Option Wizard® put at 54% probability. Doesn't mean SPY couldn't have closed at 136 or 118, it could have. Theoretically. But where should we put our confidence? Where should we place our positions.

Btw, I mentioned this exercise to a colleague as I was doing it. He is a financial engineer, Chicago firm, fan of fat tails, black swans, and N. Taleb. He scoffed. I understood, he had/has a point.

Still, even in a week (a prior month) of

• Big moves, bull & bear
• Aftermath: Earthquake, 5th worst
• Aftermath: Tsunami
• Ongoing and raging and worsening nuclear catastrophe

It is perhaps nothing short of amazing that plain, vanilla probabilities --prevailed.