How to Read an Options Risk Profile Chart

A risk profile chart shows how much an options position makes or loses across a range of underlying prices. It is the single best tool for understanding a multi-leg trade, because it shows the whole risk at a glance, including the parts that a list of legs hides.

The axes

• Horizontal axis: the underlying price.
• Vertical axis: profit or loss of the position.
• The zero line separates profit (above) from loss (below).

The expiration line

The solid line shows P&L at expiration, when each option is worth only its intrinsic value. It is made of straight segments with corners at the strikes. It tells you:

• Maximum profit: the highest point.
• Maximum loss: the lowest point, or unlimited if a line keeps falling off the chart.
• Break-even prices: where the line crosses zero.

The today line

Many charts also show a curved line for P&L today, based on a pricing model with current implied volatility. The gap between today's line and the expiration line is mostly time value. As expiration approaches, the today line moves toward the expiration line. See theta decay.

What the shape tells you

• A line rising to the right: bullish, positive delta.
• A hill: you profit if the price stays near the middle, as with iron condors and butterflies.
• A valley: you profit if the price moves far either way, as with straddles and strangles.
• A line that keeps falling at the edge: unlimited or very large risk in that direction.

Questions to ask before entering

1. What is my maximum loss, and is it within my risk limit? See position sizing.
2. Where are my break-evens, and how far are they from the current price in percentage terms?
3. How likely is the price to stay in the profit zone? Compare with the expected move.
4. What happens if the price gaps to the edge of the chart?

During the trade

Check the chart as the price moves. A trade that looked safe at entry may now sit near a short strike, where gamma is highest. The chart shows how much is at stake at each price, which makes decisions about adjusting or closing much clearer.

In TradeThink

Right-click any options trade and choose Risk profile to see the expiration line, the today line when live prices are available, break-evens, maximum profit and loss and a table of legs. Hover to read P&L at any price, and zoom or drag the chart to see a wider or narrower range. See the risk profile docs.