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Comprehensive Guide
The best Options Calculator is available for FREE
I cannot trade options without an option profit calculator. And the best one is free... Either to support a new trade or an adjustment, I do not take any decision without having it in front of my trading screen and simulating its impacts. I am sure that you will agree with me when I say that this tool is essential for your success as an option trader.
It's important to understand what's at stake when trading options. You need to know what's your maximum gain, maximum loss, and break-even price for each option strategy. A trade analysis tool can help you analyze your trading strategy before placing a trade.
The Options Profit Calculator provides a unique way to view the returns and profit/loss of options strategies, potential adjustments impact, time decay or implied volatility changes on options profit/loss, etc.
But, letβs move into the best option profit calculator... it is the one provided by the Thinkorswim platform. Best of the best, it is free! There is no cost involved; and you do not need to open a live trading account with TD Ameritrade. Just simply, download the platform and open a paper trade account. You can do it here.
From my perspective, it is the best available and most responsive options profit calculator I know. You can change any variable like date, Implied Volatility, price, etc to understand how those changes impact the profit or loss of your current strategy. I use this stock options calculator when I do my coaching sessions or before deciding on any trade that I am posting to members.
It is also a good learning tool. I want to give it credit because it helped me a lot in my learning process. And it still does! You can understand better the effect of changing variables and their impact on the Greeks and on the trade structure β as well as the Profit and Loss. Most of my time spent learning was with this tool. Every variable can be changed and you will understand its impact. What I am showing you in the images below are the basics. More advanced options are available. But, to master your options profit calculator, this is what you need to know.
Here I am delivering an options trading example with an AAPL (Apple Inc.) assuming a Short Put Vertical strategy with a 1 lot contract (2 legs). Based on the current stock price at 151.05, I am simulating that strategy where I am buying a Put option at the strike price of 145 and selling another Put Option at the strike price of 155. Since this is a short position, its price represents a credit which, for that position is 4.55 or $455.
On the right of the image, you can understand that the maximum profit will be reached at expiration and will be equal to the credit received ($455) if AAPL closed above the 155 strike price. The maximum loss or risk involved in this position is calculated as the interval between strike prices less the credit received. In this example, $555. This happens in case the AAPL closes below $145 at the expiration date.
All other stock options strategies are also available to test like Calendar Spreads, Butterflies, Iron Condors, etc. Including combinations of those options spreads.
The below menus are the key ones to start your options profit calculator. After entering your trade and selecting one option strategy from the menu, you can check the Greeks (Delta, Theta, Vega and Gamma) values along with the price "slices" - that you can move around.
The "price slices" the current market price of the underlying (in this example AAPL) shown in the chart as vertical yellow lines. You can move them around and the options calculator will compute the Greeks values across each current price. In fact, you can understand how the option price of the strategy is impacted when you move the price slices accordingly at the t0 line.
There are two main lines in the default options structure graph:
1. t0 line (magenta) that follows the profit and loss according to price variation - for me, the most important line in any options structure graph - it shows, for the current day, how the option price structure is impacted. Along this line, you can check the Greeks for the current stock price but if you move along for each side, you will also encounter the Greeks for each "price slice";
2. Expiration line (light blue): this is the profit and loss at the expiration date. The beginner's way of analyzing the position... as you can see any price movement of the underlying will have the outcome of the light blue line at expiration. Until then, we need to follow the t0 line! As a reminder, this line is the potential profit (or loss) only at expiration.
From the option profit calculator chart above, we can see that the breakeven price at expiration is different from the current price measured by the t0 line. This is because the Put credit spread at that day, where the current market price of Apple, is delivering a negative option premium which is normal because we are not at expiration.
Also available is the selection date where you can simulate its impact on the t0 line. You can move around with dates, maintaining the price level (or stock price) and easily you will understand the dynamics of the t0 line. This will move until the expiration line as time passes. You can also evaluate this in "day steps", presented in the next section.
This options calculator can also deliver several lines in the same graph. In the example below, you have the evolution of the Short Put Vertical as time passes (in a 10-day interval). Please note that the "curves" will tend to move into the expiration line of the graph.
One relevant characteristic of this option calculator is the ability to change the levels of Implied Volatility to simulate its impact. On "more parameters" you can also access the IV of each expiration, if you simulate an options structure with several ones, like Calendar Spreads. Do not forget that options IV do not move in tandem across expirations. This is very important to highlight.
Last but not least, this options calculator has the ability to compute the effect on Greeks of a portfolio of options strategies at the same time. This is very important to effectively manage a portfolio of structures, even with different underlyings.
Below you have a Put buying in SPY.
If you select "Portfolio, Beta weighted" you can select all your options positions to analyze them as a portfolio. The Greeks computed will include them and you can check if you are having, for example, excessive Delta Risk.
Check below the combination of the AAPL Short Put Vertical with a Long Put in SPY (at the same expiration, where its current market price is 467.94). But, it could be in different expirations that the income calculator will compute the overall risk portfolio. Checking this beta-weighted portfolio will leave you with a sense of your total risk. You can see if your risk tolerance is high enough and decide to open a hedge position or create an adjustment to any of your positions in order to manage overall risk.
You should take into consideration that, when making simulations on any options calculator, you should understand that not only the price of the underlying is changing (in case you are trading stocks, the current stock price is the only risk parameter). Also, it changes the options implied volatility, time (which also impacts Gamma), etc. The income calculator helps me to see what are the possible outcomes for each scenario that I want to test. I am using it every day, not only to decide about opening new positions in my investment fund but also to evaluate open positions' risk and decide on adjustments.
As you understood, options are complex and many variables impact the options price. Yo u cannot trade options without an options calculator that will help you to visualize "what-if" scenarios.