PROTECTED SOURCE SCRIPT
Black-Scholes Probability Model with Time-Based Volatility
I developed this tool to automate probability calculations and to verify if Polymarkets accurately reflects Bitcoin's value. The indicator uses a modified Black-Scholes model to estimate the likelihood of Bitcoin exceeding or falling below a $97,000 strike price by a specified end date, providing a "fair value" probability.
Key Features:
- Timeframe Control: Displays data only between a defined start and end date, ensuring relevance during the prediction period.
- Dynamic Volatility Calculation: Offers a choice between manual input and auto-calculated annualized volatility. The auto-calculation derives historical volatility from recent price data over a selected lookback period and adjusts it based on the time remaining until expiration. More time implies greater expected price movement; less time indicates a narrower expected range.
- Probability Estimation: Calculates an adjusted parameter (d1) and applies a normal cumulative distribution function (CDF) to determine:
- "Yes" (Green Line): Probability that Bitcoin will exceed $97,000.
- "No" (Red Line): Probability that Bitcoin will remain below $97,000.
When Bitcoin's price is exactly $97,000, the tool sets the probabilities to a balanced 50/50 split, indicating fair value.
- Fair Value Indicator: Includes a static white reference line at 50% probability. A 50/50 probability suggests Bitcoin is fairly valued at $97,000; deviations indicate potential overvaluation or undervaluation.
- Polymarkets Tracking & Trading Strategy: I use Polymarkets to access cost-effective, high-leverage long call options on Bitcoin. However, these options don't always mirror Bitcoin's price movements precisely. For instance, if I anticipate Bitcoin rising from $95,000 to $97,000 by day's end, the tool might show a fair value probability of 50%. If Polymarkets quotes a 50% chance, the alignment indicates a fair trade. In such cases, I can avoid an unfavorable trade or exploit the difference as an arbitrage opportunity.
- Personal Motivation: This indicator eliminates the need for manual calculations and ensures I can quickly assess when Polymarkets' pricing aligns with Bitcoin's actual value, leading to more informed trading decisions.
This tool automates probability and fair value assessments, serving as a practical resource for verifying and potentially capitalizing on discrepancies in Polymarkets' Bitcoin pricing. It helps identify when there's a mismatch between the market's implied probability and the calculated fair value, allowing me to avoid unnecessary premiums on high-leverage options.
Key Features:
- Timeframe Control: Displays data only between a defined start and end date, ensuring relevance during the prediction period.
- Dynamic Volatility Calculation: Offers a choice between manual input and auto-calculated annualized volatility. The auto-calculation derives historical volatility from recent price data over a selected lookback period and adjusts it based on the time remaining until expiration. More time implies greater expected price movement; less time indicates a narrower expected range.
- Probability Estimation: Calculates an adjusted parameter (d1) and applies a normal cumulative distribution function (CDF) to determine:
- "Yes" (Green Line): Probability that Bitcoin will exceed $97,000.
- "No" (Red Line): Probability that Bitcoin will remain below $97,000.
When Bitcoin's price is exactly $97,000, the tool sets the probabilities to a balanced 50/50 split, indicating fair value.
- Fair Value Indicator: Includes a static white reference line at 50% probability. A 50/50 probability suggests Bitcoin is fairly valued at $97,000; deviations indicate potential overvaluation or undervaluation.
- Polymarkets Tracking & Trading Strategy: I use Polymarkets to access cost-effective, high-leverage long call options on Bitcoin. However, these options don't always mirror Bitcoin's price movements precisely. For instance, if I anticipate Bitcoin rising from $95,000 to $97,000 by day's end, the tool might show a fair value probability of 50%. If Polymarkets quotes a 50% chance, the alignment indicates a fair trade. In such cases, I can avoid an unfavorable trade or exploit the difference as an arbitrage opportunity.
- Personal Motivation: This indicator eliminates the need for manual calculations and ensures I can quickly assess when Polymarkets' pricing aligns with Bitcoin's actual value, leading to more informed trading decisions.
This tool automates probability and fair value assessments, serving as a practical resource for verifying and potentially capitalizing on discrepancies in Polymarkets' Bitcoin pricing. It helps identify when there's a mismatch between the market's implied probability and the calculated fair value, allowing me to avoid unnecessary premiums on high-leverage options.
Protected script
This script is published as closed-source. However, you can use it freely and without any limitations – learn more here.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Protected script
This script is published as closed-source. However, you can use it freely and without any limitations – learn more here.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.