What is probability of profit (POP)?

Probability of profit (POP) estimates the chance that an options trade will make money at expiration. It’s shown as a percentage and represents the likelihood the trade earns at least $0.01 when the option expires. POP helps you understand how likely a trade is to be profitable based on current market conditions.

How POP works:

POP looks at whether the stock price is expected to reach a level that would make the trade profitable at expiration.

• For long options (buying): POP shows the chance the option finishes far enough in the money to cover the premium you paid and reach breakeven.
• • Calls need the stock price to finish above breakeven.
  • Puts need the stock price to finish below breakeven.
• For short options (selling): POP shows the chance the option expires out of the money, allowing you to keep the premium you received.

How POP is calculated:

POP is a forward-looking estimate based on options pricing models such as Black-Scholes. The calculation uses several market inputs, including:

• Current stock price
• Strike price
• Implied volatility
• Time until expiration
• A constant 5% risk-free interest rate

These estimates assume the position is held until expiration.

Important to know:

POP is a theoretical estimate, not a guarantee of profit. The percentage shown is a risk-neutral probability, which means it comes from options pricing models used to estimate option values. It helps compare trades but does not represent the real-world chance of profit. Market conditions can change, and options may be exercised or assigned before expiration. Because of this, actual results may differ from the estimate.