I was reading this article, when I came across this text:
Without using a complex options pricing model, one can use intuition to translate option prices into implied probabilities. For instance, the value of the call and put butterfly can be thought of as being directly proportional to the likelihood of the stock finishing around the middle strike where the maximum payout occurs.
It does seem (a first blush), a rather extravagant claim - especially, as no rationale is giving to support that assertion.
Can anyone provide any information to support this statement? It seems that the author of the article is basing his reasoning on the (fallacious?) heuristic that ATM options have a delta of 0.5 (but I might be wrong).
Would love to know more, as I'm interested in building an empirical probability distribution based off option prices.
