What is probability of profit (POP)?
In one line: Probability of profit, or POP, is a model's estimate of the chance that an option trade finishes above its break-even price at expiry, based on today's implied volatility.
How it works
Probability of profit, or POP, is a number your broker's platform shows next to a trade. It says something like "72%". It means the pricing model thinks the trade finishes above its break-even about 72 times out of 100.
The model builds that number from the stock price, the time to expiry and the option's Implied volatility. It assumes stock moves are random and bell-shaped. Real stocks gap, trend and panic. So POP is a rough map, not the ground.
For a seller, POP is usually high. A far Strike price has a small chance of being reached, so the trade "wins" often. That's the trap: a high POP says nothing about how big the loss is when it does lose. In the wheel strategy, that loss is a stock that keeps falling.
An example (hypothetical)
An illustration, not a trade idea. Made-up stock XYZ trades at $50. You sell a 30-day Put option at the $45 strike for $1.00. Your break-even is $44. The platform shows a POP of about 80%.
| XYZ at expiry | Chance the model gives it | Result |
|---|---|---|
| $45 or higher | Most of the 80% | +$100 (the full premium) |
| $44.50 | Part of the 80% | +$50 |
| $40 | Part of the other 20% | Assigned at $45, worth $40: −$400 |
| $30 | A small slice of the 20% | Assigned at $45, worth $30: −$1,400 |
Four wins of $100 and one loss of $1,400 leaves you down $1,000. The 80% was true. The trade still lost money. POP counts how often you win, not how much you keep.
Why it matters for sellers
Sellers love POP because it makes the trade look like a sure thing. Read it alongside two other numbers:
- Delta, the rough chance the option finishes in the money. For a short put, that is the chance of Assignment.
- Max loss, the strike times 100 minus the premium. That's the dollar figure POP never shows.
A good habit: when a trade shows 80% POP, write down what the 20% costs. If you can't hold that loss calmly, the odds don't matter.
POP also changes every day. A move toward the strike or a jump in implied volatility pulls it down, even if nothing else happened. Don't treat the number you saw at entry as a locked-in fact.
Questions
Is probability of profit accurate?
It's a model estimate built on today's implied volatility and a bell-shaped view of stock moves. Over many trades it's a fair rough guide. On any single trade, the stock does what it does.
What is a good POP for selling options?
There's no right number. A higher POP means a further strike and a smaller premium, so the wins are smaller and the rare loss is still big. Pair POP with the max loss before deciding.
Is POP the same as probability ITM?
No. Probability ITM is the chance the option finishes past the strike. POP is the chance the trade is above break-even, which includes the premium. For a seller, POP is a little higher than one minus the probability ITM.
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