This application allows you to evaluate the risk associated with trades of standardized stock options. It provides two views of a trade to help evaluate risks and potential outcomes:
- A traditional risk chart, showing the value of trades at expiration as a function of the underlying price.
- An outcome percentile chart, showing the probability of various P/L outcomes from the option strategy.
This is a Java 6 application. When you launch it, it may take a moment to download the libraries it needs to run. And if your system doesn't have Java 6 installed, it will ask you to install it.
Quick-Start Guide
For an intro to what the calculator can do:- Click the menu and select one of the choices - for example, . This will populate the input fields with example values illustrating the type of trade you selected.
- Click the button at
the bottom. This will open a new window containing a risk chart for
the option trade, showing the expected range of stock prices at the
first expiry, their probabilities, and their corresponding profit/loss
amounts. Interactive features include:
- As you move the mouse over the red plot, it will show you the value of the trade at that price, and the probability of closing at or above the price.
- A scrollbar at the bottom of the window allows you to view the value of the trade before the expiry - by sliding it back and forth, you can examine the risk chart for any date between tomorrow and the first expiry.
- In the risk chart, click the menu and select the first menu item. This will bring up another window for running a trade simulation, and will ask you how many price paths you want to simulate. If you have a reasonably modern PC, the default value (100,000) is a good answer. If your PC is old and slow, you may need to choose a smaller value. Click OK.
- The calculator will run a simulation of many different possible price paths and compute the resulting profit/loss. As it runs, a progress bar will keep you updated on the progress.
- When the simulation completes, the chart will display the profit/loss outcomes of the simulation, from the worst loss (lower left) to the best gain (upper right). The bottom axis identifies the percentiles of the various outcomes, and moving the cursor over the red plot allows you to see the probability of reaching or exceeding the corresponding P/L. For more information on how to read this chart, see the Outcome Percentile Chart documentation
That's the quick introduction. For more detailed documentation, start on the Describing the Trade page.
For contact information, or to join the Option Risk Calculator announcements list, see the Contact Information page.
Home • Starting Out • Risk Charts • Outcome Percentile Charts • Analyzing the Full Trade • Theory of Operation • Contact Information • Frequently Asked Questions
DISCLAIMER: This risk calculator is for educational purposes only, and is not intended as a basis for trading decisions. Use at your own risk.