The formula
expected value per contract = your hit rate × 100¢ − (price + fee)
It uses your estimate of the chance, not the market's. If you agree with the price exactly, expected value is just minus the fee.
A single contract
You buy 100 contracts at 40¢. The estimated fee is $1.68, so the all-in cost is 41.68¢ per contract. You think the outcome happens 46% of the time.
46 − 41.68 = +4.32¢ per contract, or about $4.32 across 100 contracts. That's the average result over many similar trades, not what this one will do. This one either pays $58.32 or loses $41.68.
A combo
Three legs at 62¢, 58¢ and 70¢ multiply to 25.2%. A combo quoted at 29¢ costs 30.46¢ all-in with fees. At the market's own numbers, expected value is 25.2 − 30.46 = about −5.3¢ per contract.
| Your read on each leg | Combined | EV on 50 contracts |
|---|---|---|
| Same as the market (62 / 58 / 70) | 25.2% | −$2.64 |
| About 4 points sharper (66 / 60 / 72) | 28.5% | −$0.97 |
| Needed to break even | 30.5% | $0.00 |
To break even on that quote, you need to be roughly 4–5 points sharper than the market on every leg. Being a little right on each leg is not enough once the markup and fees are in.
Hedges have expected value too
If the price of the opposite side is fair, a hedge has zero expected value before costs, and slightly negative after fees and the spread. That's the cost of narrowing your outcomes. A hedge is worth it when the narrower range matters more to you than that cost.
Expected value is an average, not a promise
Positive expected value only shows up over many trades. A single contract still settles at $0 or $1. Size each position so a full loss is acceptable, however good the expected value looks.
