Probability of Profit1 is a common industry expression used to describe the likelihood that a single or multi-legged option strategy will make at least $0.01 profit on a trade. If the multi-legged strategy includes options with different expiration dates, the probability of profit calculation extends to the date of the leg with the earliest expiration date. The calculation of POP is based on widely accepted option theory using either market-implied or user-defined data.2
Additional Information
- How is Probability of Profit calculated?
- What factors affect the profitability of an option strategy?
- What is an Options Performance Graph?
- What is an Options Price Distribution graph?
- What is Market-Implied Probability of Profit?
- What is User-Defined Probability?
- What does the "aggressiveness" level of an option strategy mean?
1This article may contain links to third party websites and information, which are provided for educational purposes only. The broker does not warrant or in any way guarantee any third-party information that is provided. All links and information therein are subject to change. Probability of Profit is a mathematical expression based on accepted industry options pricing and statistical distribution models. Probability of Profit is for informational purposes only and is not a recommendation. Probability of Profit does not consider any individual investor’s financial profile, investment objectives, or other factors that would typically be used when making recommendations.
2The Probability of Profit calculation does not include fees or commissions.
Options involve risk and are not suitable for all investors. For more information read the “Characteristics and Risks of Standardized Options” that you can find on the OCC website.