The profitability of an option strategy is simply the return the investor receives from executing or closing the strategy, minus the options premium price paid or received when the position was opened, plus any fees or commissions paid1. The value of an option depends on multiple factors including the current market price of the underlying security, strike prices of the options, distance between the strike price and the current underlying market price of the underlying, expected dividends, time until the options expire, and the Implied Volatility, which is the standard estimate of the future volatility of the underlying security’s price over the life of the option.
1The Probability of Profit calculation does not include fees or commissions.
This 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.
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.