Investing Without Probabilities: Are We Ignoring the Odds?

For the life of me, I’ve never understood why so many professional analysts—those well-paid “talking heads” you see on TV—rarely, if ever, mention probabilities. You’d think they’d want to tell us the odds of a stock hitting their price target. After all, isn’t knowing the likelihood of success fundamental to making an informed decision? Yet, probabilities seem to get lost in the noise of bold predictions and shiny price targets.

Take Nvidia (NVDA), for example. According to The Wall Street Journal, 65 analysts currently cover the stock. With NVDA trading at $136.24, their average price target is $175. One particularly optimistic analyst has even set a high target of $220—62% above the current price. But here’s the catch: these numbers come with no statistical context. No timeframe, no probability—just the shiny allure of what might happen. If we’re putting our hard-earned money on the line, shouldn’t we demand more than vague aspirations?

This is why I take a quantitative approach to investing. I want to know the probability of a stock hitting a specific price over a defined period. Better yet, I want to know exactly how much I stand to gain or lose. That’s where options trading shines—it allows us to quantify probabilities and build strategies with precision. Let’s look at Nvidia again, but this time, let’s use the tools of probability to evaluate those price targets.

The Probability of Touch: A Reality Check for Nvidia

For those unfamiliar, the "Probability of Touch" measures the likelihood that a stock will hit a specific price at least once before a given expiration date. It’s a concept every professional options trader uses but one that every investor could benefit from understanding. Let’s calculate the probability of NVDA touching $175—the analysts’ average target—and compare it across three timeframes: 30 days, 121 days, and 519 days.

• Over the Next 30 Days: The probability of NVDA hitting $175 by February 14 is only 4.71%. That’s less than a one-in-twenty chance—a long shot, to say the least.

  

  February 14, 2025 175 call strike: 4.71%

• Over the Next 121 Days: By May 2025, the probability rises to about 32.71%. It makes sense; more time gives the stock more opportunity to move.

  

  May 16, 2025 175 call strike

• Over the Next 519 Days: By June 2026, the probability reaches 61.14%, giving it a modest edge over a coin flip but still far from a certainty.

  

  June 18, 2026 175 call strike

Now, let’s consider the analyst projecting NVDA will hit $220.

• Over the Next 30 Days: The probability of NVDA hitting $220 by February 14 is only 0.36%—essentially a lottery ticket. While possible, such a low probability emphasizes the importance of grounding decisions in realistic expectations.

  

  February 14, 2025 220 call strike

• Over the Next 121 Days: By May 2025, the probability rises modestly to 7.66%. More time gives the stock a better opportunity to move, but the odds still highlight the challenges of achieving such a target within a limited timeframe.

  

  May 16, 2025 220 call strike

• Over the Next 519 Days: By June 2026, the probability rises to 34.28%, offering a slight chance but still leaving the odds heavily weighted against reaching the target—a reminder of how challenging such high price goals can be. This progression shows how probabilities change with time, offering insights into strategic planning for options traders.

  

  June 18, 2025 220 call strike

The highest strike available for options pricing is $300, and even that has just a 1.03% chance of being reached by June 2026. It’s in lottery-ticket territory, with an estimated Probability of Touch below 1.1%. Yet, this target is presented without a hint of skepticism.

Why Probabilities Matter

The gulf between bold predictions and actual probabilities is precisely why investors need to think quantitatively. Knowing the odds doesn’t guarantee success, but it does give you the power to make informed decisions. Options trading takes this a step further by letting you choose your probability of success in real-time, tailoring your strategy to your comfort with risk. Want an 80% probability of success? There’s a trade for that. Prefer a higher payout with lower odds? That’s available too.

And this isn’t just about options traders. Every investor can benefit from understanding probabilities. They force us to confront the uncomfortable truth: investing isn’t about certainties. It’s about managing risk, weighing rewards, and making decisions based on more than just hope.

The Humble Power of Quantitative Investing

Let’s be honest: markets don’t care about our dreams, and stocks don’t move to meet analysts’ aspirations. By focusing on probabilities, we trade guesswork for clarity and hope for discipline. That’s not just a smarter way to invest—it’s a more honest one. As investors, we owe it to ourselves to dig deeper, ask better questions, and use every tool at our disposal to navigate an uncertain market.

So the next time you hear a bold price target, take a step back and ask: “What are the odds?” The answer might surprise you—and it might just save you from chasing another lottery ticket.

Applying Probabilities to Every Trade

In my own trading, probabilities aren’t just a theoretical concept—they’re a cornerstone of every decision I make. Whether it’s selecting the right strategy, setting realistic targets, or managing risk, understanding probabilities allows me to approach each trade with confidence and precision. In future discussions, I’ll share how I incorporate probabilities into my trading process, the strategies I use to align with my portfolio goals, and how this approach helps me manage risk effectively while navigating the complexities of the market.

By focusing on what the numbers tell us—and leaving the guesswork behind—we can make smarter, more disciplined choices as traders and investors. Stay tuned for insights into how probabilities can transform not just individual trades, but your entire approach to portfolio management.

May your premiums be high and your risks low,

Andy Crowder

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