When trading options, it's important to understand the characteristics of your options strategy. OptionStrat's strategy builder is used to find the potential profit and loss at various prices, as well as show how your trade is affected by implied volatility, time decay, and other factors.
1. Choose a strategy
From any page you can use the menu to view the 50+ pre-made strategies. Hover over a strategy to read a short description about it and to view the profit and loss shape. This small chart shows how the stock price, represented by the X axis, affects the profit and loss, represented by the Y axis.
2. Choose a stock
To choose a stock, type the symbol or company name to search it. Only stocks that have options are shown. Once selected, you will see the current price of the stock and the available options.
3. Select an option
Slide the expiration selector to view all expiration dates. Click an expiration day to select it. For complex strategies, you can also add another expiration.
Similarly, slide the strike selector to view all available strikes. Drag an option to change it's strike.
Calls are green and puts are red. Options on top are long (bought), and options on the bottom are short (sold).
Premium members will see bars above and below each price, which show the volume of calls (green) and puts (red) at each strike.
Hold shift while dragging the strike slider to move all strikes at once. For some strategies like iron condors or butterflies, hold shift while dragging an individual option to move the opposing option in the opposite direction.
4. View key stats
Now that your option or strategy is selected, you can view key information including the net debit (or credit), the maximum loss and profit, the breakeven prices, and the chance of profit.
- Net Debit/Credit: The cost of the trade, or the credit received for the trade. Buying options requires a debit, while selling options gives you a credit.
- Max Loss/Max Profit: The maximum potential loss or profit of this trade at expiration. Note that this does not account for assignment risk, dividend risk, etc.
- Breakeven: This is where the stock must be at expiration to make any profit at all.
- Chance of Profit: Only visible to premium members, shows the chance of profit based on the implied move.
- Greeks: Swiping to the second page of stats shows the net option greeks, which are the combined greeks for all options in your strategy. Refer to any basic options tutorial to learn more about the greeks.
5. Using the profit/loss table
The table shows the expected profit or loss of your option(s). The rows are the potential prices that the underlying stock could be, and the columns are various dates in the future. For example, in the above image, you can see how the call will have an estimated profit of $805 profit if the stock hits $400 on the 24th.
Use the "Chart Range" slider to zoom in or out on the table. The buttons below the table allow you to change what values are displayed. It defaults to the profit and loss in dollars, but you can also select the percent change, percent of risk, or actual value of the contract(s).
6. Using the profit/loss chart
The chart is a similar method of viewing the profit and loss, but it only shows one day at a time. Use it if you want to get a closer look at the various potential prices for a day. The X axis is the potential price of the underlying, and the Y axis is the profit/loss at that price. Drag the "Days Until Expiration" slider to change the day, and move your mouse over the graph to show the exact profit/loss at a point. The blue line represents the breakeven price.
7. Adjusting IV
IV, or implied volatility, has a big impact on the price of options. The calculator assumes the IV is constant, but in reality it will likely change. Use the IV slider to understand how changes in the IV will affect your trade. For example, a long call or put will decrease in value if IV decreases (known as IV crush), which happens after earnings.
8. Adjusting the options
Click on an option to open an additional menu, from here you can change the quantity of the options, change the type (call/put), and edit the price.
To edit the price, click the price and input a custom price. By default the current price is used, but you can input a custom price to add trades that you have already entered.
The action buttons are used to add another option, flip (invert) the strategy, and toggle between using the mid price or bid/ask prices. The mid price is the middle of the bid ask prices, but using the bid/ask prices may be more accurate for the price you will actually be able to buy or sell the option at.
9. Saving and sharing trades
Click the link icon in the top right to save the trade. You are also given the option to share the link. Saved trades will show on the saved tab and allow you to track the profit and loss of your trade over time.