Expected Value
Expected value, often abbreviated EV, estimates the average value of a decision if the same type of situation could be repeated many times under the assumed probabilities and payouts. A simplified calculation is: EV = (Probability of Win × Amount Won) − (Probability of Loss × Amount Lost)
Why it matters to you
Expected value separates: "Do I think this will happen?" from "Is this a good trade at this price?" A highly likely outcome can still offer poor value if the contract is too expensive. A less likely outcome can offer positive expected value if its price is sufficiently low relative to its true probability.
Terms that sit next to this one
Positive Expected Value, Negative Expected Value
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