An options performance graph plots the profit and loss of an options strategy across the possible range of prices of the underlying security. The graph is centered at the current options strike price. The option premium is cash either paid or received for opening the options strategy position. The breakeven point is when the value of the option is equal to the premium paid (not including any applicable fees or commissions). The breakeven is calculated as:
Breakeven Price = Strike Price + Options Premium
The performance graph also plots the maximum potential loss and maximum potential gain of an options strategy.
Options strategies are more valuable the farther they are from the strategy’s expiration date, due to their time value (this is depicted in the sample graph as the red dotted line). As the option strategy approaches its expiration date, the option value moves closer to its intrinsic value (depicted in the sample graph as the solid red line).
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. The 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.