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Probability of Profit Calculator

Probability of profit equals the lognormal probability that expiration stock price lands between lower and upper break-even.

Expiration scenarios

Solution

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Educational estimate only, not financial advice. Results exclude commissions, taxes, slippage, dividends, assignment risk, margin, and broker-specific rules. Verify before trading options.

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Probability of Profit Formula

The model assumes a lognormal stock distribution using implied volatility and time to expiration.

Worked Examples

Load these examples to compare common probability of profit payoff outcomes.

POP RANGE

Estimate a two-break-even profit range

A short premium trade profits between two break-even prices.

  • Enter the manual prices and assumptions.
  • Review the calculated risk, reward, and break-even metrics.
  • Compare the chart with the highlighted scenario.

Result: the calculator updates the scenario metrics and chart from those inputs.

Real fills, fees, and broker margin rules are not modeled.

How It Works

This calculator estimates the probability that a stock finishes inside a strategy's profit range at expiration.

Example Problem

Enter stock price, IV, days to expiration, and the strategy's break-even prices.

  1. Convert IV and days into a one-standard-deviation move.
  2. Map the break-evens onto a lognormal distribution.
  3. Subtract the lower-tail probability from the upper-tail probability.

The result is a model estimate, not a prediction.

Key Concepts

A wider profit zone or lower implied volatility usually raises probability of profit.

Applications

  • Comparing credit spreads and condors.
  • Checking short-premium ranges.
  • Estimating whether break-evens are wide enough.

Common Mistakes

  • Treating POP as expected value.
  • Ignoring skew and fat tails.
  • Using stale implied volatility.

Frequently Asked Questions

What does the Probability of Profit Calculator calculate?

It calculates the selected options result from manual inputs, without requiring live stock or option quotes.

Does this calculator need live market data?

No. Enter the prices, premiums, volatility, days, or Greeks yourself. The calculator uses those manual inputs only.

Are commissions, taxes, margin interest, and assignment fees included?

No. The result excludes commissions, fees, taxes, borrow costs, slippage, and broker-specific margin rules.

Why can real trading results differ?

Real option prices can change with implied volatility, liquidity, dividends, early assignment, and execution prices.

Reference:

Standard options payoff, probability, and risk-management formulas.

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