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Probability of Profit (POP)

POP stands for probability of profit. This is the probability that you have of making at least $0.01 on the trade at expiration. For trades done for a credit, it's the probability of the break even price expiring out of the money and for trades done for a debit, it's the probability of the break even price expiring in the money. So, with trades done for a credit, the greater the credit received, the higher the probability of profit (all else equal). With trades done for a debit, the lower the debit paid, the higher the probability of profit (all else equal). POP can be found at the bottom of the trade page and also on the Portfolio page. 

These calculations are off hand calculations used to determine rough POP for these given strategies.

Watch Jacob describe Probability of Profit here

Calculating POP when selling a Naked Put

  1. Subtract premium received from the strike that was sold
  2. Find the probability of that value being ITM
  3. Subtract from 100

Calculating POP for a covered Call

  1. Take premium received - Stock price
  2. Find the probability ITM closest to that number

Calculating POP for a Vertical Spread

  1. Divide the premium received by the width of the spread
  2. Multiply by 100 
  3. Subtract this value from 100

Calculating POP when selling a Strangle

  1. Subtract total premium received from the put strike and add the total premium received to the call strikes to find break-even strikes
  2. Find the probability ITM for breakevens
  3. Add probabilities together and subtract from 100

Calculating POP for an Iron Condor

  1. Premium / width of the strikes
  2. Multiply by 100
  3. Subtract this value from 100

 

 

 

 

 

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