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Probability and position risk
Use the options-implied range to describe the underlying, and the complete position to evaluate its profit and loss. Connect those two views by naming the event, the time horizon, the premium paid or received, and the assumptions behind any probability estimate.
Delta is primarily a sensitivity
A +0.16 call delta estimates about +0.16 in option premium for a small one-point rise in the underlying, with other pricing inputs held constant. Delta changes as the market and remaining time change. Traders sometimes use its magnitude as a rough proxy for the probability of finishing in the money; that relationship is model-dependent, rather than an exact real-world probability.
Touch: does price reach a level at any point before expiration?
Finish ITM: does the option have intrinsic value at expiration?
Make money: is the complete position profitable after premium and costs, under the stated exit rule?
A path can touch a level and later finish on the other side. An option can also finish ITM while its intrinsic value is smaller than the premium paid. A probability-of-profit estimate therefore needs a specified horizon and profit definition. Holding to expiration and closing earlier at a profit target are different events.
For the underlying Greek, see OIC’s delta reference. TanukiTrade’s delta curves mark interpolated target-delta levels; they do not calculate the profitability of a particular multi-leg position.
A call can finish ITM and still lose money
Long call · strike 100
Premium paid: 4 points.
Expiration breakeven: 104.
Profit at expiration:max(S − 100, 0) − 4.
98 → touches 110 → finishes 102
The call’s strike was crossed during the path, and it finishes ITM. Held to expiration, its intrinsic value is 2 and its net result is −2 points.
| Expiration price | Intrinsic value | Net result | Finishes ITM? |
|---|---|---|---|
| 98 | 0 | −4 | No |
| 102 | 2 | −2 | Yes |
| 104 | 4 | 0 · breakeven | Yes |
| 106 | 6 | +2 | Yes |
Values are per underlying unit, before fees and execution costs, with the call held to expiration. The contract multiplier scales the cash amounts. An earlier exit would depend on the actual sale price; the table does not value that alternative. The long-call expiration breakeven is strike plus premium.
A range is different from a path constraint
The familiar roughly 68% interpretation of one standard deviation uses a normal-distribution approximation at a specified horizon. It concerns the outcome at that horizon, rather than staying inside the band for the entire path. Actual returns can deviate from that model.
BEM is a premium-based calculation, and Smart Range blends several methods. The shaded space between range methods compares estimates; it is not a separately calibrated probability region. For the formulas and their interpretation, see Expected move.
Read the size of wins and losses as well
In a hypothetical two-outcome model, an 80% chance of gaining 1 unit and a 20% chance of losing 5 units gives 0.80 × 1 − 0.20 × 5 = −0.20 units per trial, before costs. The probabilities here are assumed for the example; they are not TanukiTrade forecasts.
Probability of profit describes the chance of a positive result under the chosen model and exit rule. Expected profit also accounts for the size of all possible gains and losses. Neither number, by itself, describes the capital required or the severity of a large loss.
The position has its own exposures
| Sensitivity | Question for the position |
|---|---|
| Delta | How does its value respond locally to an underlying price change? |
| Gamma | How quickly can that directional exposure change as price moves? |
| Theta | How does passage of time affect value under the current assumptions? |
| Vega | How does value respond to a change in implied volatility? |
Read these Greeks for the net position, including contract quantities and multipliers. They are local sensitivities, not a complete forecast for a large move. For multi-expiration structures, the legs can reprice differently; a parallel IV change is only one possible scenario.
Delta can change even while spot is unchanged: its time sensitivity is often called charm, and its volatility sensitivity vanna. The practical point is that today’s exposure can evolve before the underlying reaches a level.
Today’s curve is not the expiration payoff
Long symmetric butterfly
For a standard long call butterfly entered for a debit, the theoretical maximum expiration profit occurs at the middle strike. Touching that strike earlier does not establish that expiration result: the spread still has a current market value influenced by time and volatility. Other butterfly structures have different payoffs.
Long calendar or diagonal
With a short front-expiry option and a long later-expiry option, a graph drawn at the short leg’s expiration still includes a model value for the unexpired long leg. Its remaining time and IV affect that value, so the displayed breakevens and profit region depend on those assumptions.
Compare the analysis date, IV assumptions and actual position structure before interpreting a payoff graph. OIC’s long call butterfly and long call calendar references explain these specific structures.
Credit received is not risk removed
Premium from a short put can offset another spread’s debit while adding its own downside exposure. Cash reserved for a physically settled put supports payment on assignment; it does not prevent an economic loss if the acquired underlying is worth less than the effective purchase cost. The complete combination determines the remaining risk.
After an adjustment, distinguish profit already realized, the value of the remaining open position, and its possible future losses. Recovering the initial debit does not establish that the whole trade can no longer lose money. Include premiums, closing cash flows, fees, and the relevant exercise/assignment and settlement mechanics.
The trade walkthrough lessons show why the chart map and the position risk graph need to be reviewed together.
TanukiTrade documentation. Levels are context, not a recommendation. tanukitrade.com