Probability of Profit & Expected Move
Probability of profit (POP) is the chance a trade finishes at breakeven or better. Expected move is how far the stock is likely to travel over a given period. Both are derived from implied volatility, and used together they help you judge whether a trade’s odds justify its risk.
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How they are calculated
Using a lognormal model of the stock price at expiration — driven by implied volatility and time — you can calculate the probability mass that falls into the price range where a position is profitable.
The one-standard-deviation expected move is roughly price × IV × √(days/365), capturing about 68% of likely outcomes. Two standard deviations covers about 95%.
Why high POP is not the whole story
Selling a far out-of-the-money spread might show a 90% probability of profit, but the 10% loss can be many times larger than the small credit collected. Probability and payoff must always be weighed together.
A trade with 60% POP but a 2:1 reward-to-risk ratio can be far better than a 90% POP trade that risks $9 to make $1. The math of expected value matters more than the headline probability.
Using POP in practice
Premium sellers tend to target high-POP, defined-risk trades and manage them before expiration. Directional buyers accept lower POP in exchange for larger payoffs.
OptionProfit’s strategy finder scores candidates on POP, expected return at your target price and reward-to-risk together, so a balanced trade rises to the top rather than a deceptively safe one.
- POP = chance of finishing at breakeven or better, from IV and time.
- Expected move ≈ price × IV × √(days/365), ~68% within 1σ.
- High POP often comes with a poor reward-to-risk ratio.
- Judge POP, payoff and risk together, not in isolation.
Frequently asked questions
Is POP the same as delta?
They are close: a short option’s delta is a rough proxy for the probability it expires in the money, and POP builds on the same volatility-based model.
Why do two sites show different POP?
Because they may use different volatility inputs or models (some use delta, some a full lognormal integral). Treat POP as an estimate, not a precise figure.
Does a 70% POP mean I will win 70% of the time?
Over many independent trades, roughly — but variance is large, and a few outsized losses can still leave you unprofitable if your risk per trade is too high.
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