Frequently asked questions
How do I use this calculator?
Please view the 5-minute tutorial on how to make a basic calculation.
What formula is used for estimates?
The website uses the Black-Scholes formula to estimate returns at a range of dates and potential underlying prices. The estimations are based on implied volatility which is calculated from the current price of the selected options and the current price of the underlying stock or ETF.
For strategies employing multiple options, the estimated price of each option is calculated individually and combined to give gross profit or loss. The overall P/L for any given point in time and price is the exit value less the total entry value, which is calculated using the latest market prices (15 min delayed) combined with the cost prices you select.
- The largest unknown in the Black-Scholes formula, and any other pricing method, is Implied Volatility. Given a constant IV, the calculator will be correct in its price estimation, however since IV is a reflection of market sentiment and external variables, it is impossible to predict what people will be thinking in the future.
- 'Slippage' due to entering and exiting the trade based on bid/ask spread is not taken into consideration. The current market price is used to calculate the implied volatility. The calculated value of each option is not altered based on the current bid/ask spread.
- Any brokerage fees you may incur are not included in the calculation.
Where does the pricing information come from?
Stock and Options prices are sourced from reputable third party websites. Prices are delayed between 15-30 minutes.
Unfortunately for both of us, this site doen't make enough money to cover a subscription to a premium data feed.
For live data and options tools in Microsoft Excel, we can recommend the OptionsXLS plugin.
How do you determine Probability of Profit / why is PoP different to another platform?
Probability of profit is the likelihood of achieving breakeven or better on the day of expiry
We use a normative distribution equation (as opposed to delta / spread cost based), and this is derived from 30 day Implied Volatility. We hope to add alternative methods of PoP in the future.
There are multiple methods of calculating Probability of Profit, each coming up with slightly different numbers. This should serve as a reminder that PoP is just a rough number, devoid of complex market understanding.
Can I download my set-up to Excel for future comparison?
We have partnered with OptionXLS, who provides a Microsoft Excel plug-in which gives you access to options data including live US market pricing. They provide templates and an extensive suite of new excel formulas, giving you advanced ability to filter and analyse options and stocks.
OptionsProfitCalculator users can access a discounted price on subscription; visit the OptionXLS website to learn more.
We will be adding the feature download a spreadsheet of your calculation estimates, allowing you to manage your history of calculations and organize your trades.
I lost money on a trade and your calculator said I would make a profit.
Please read the limitations of calculator as above. The most common reason for this is that the company released a statement or an earnings report, and there was a drastic and sudden change in the implied volatility.
What time of day are the daily estimates for?
Estimates are for market open time on the day listed. We show an estimate on the morning of expiry day (where there is still time value remaining) as well as the last column ('exp') which is at market close on expiry day. (For diagonal / calendar spreads, 'back months' option legs will still have time value remaining.)
The exception is for the first day where, if you have made the calculation after market open, the estimates are from the time the calculation is made, rather than opening time.