Probability of Profit/Success

Probability of Profit (POP), also called probability of success, is an estimate of how likely an options position is to make at least some money by the time it expires. It is expressed as a percentage — a POP of 65% means that, under the model's assumptions, the position would end up profitable roughly 65 times out of 100 in similar situations. It is a statistical estimate, not a guarantee, and it says nothing about how much you'd win or lose in each case.

The number usually comes from an options pricing model (commonly a variation of Black-Scholes) that uses the current price of the underlying, time left until expiration, and implied volatility (the market's expectation of how much the price will swing) to build a probability distribution of where the stock might land at expiration. From that distribution, the model calculates the odds that the price finishes on the profitable side of your breakeven point or points.

For simple credit spreads — where you sell one option and buy another further out to cap risk, like a short vertical or an iron condor — traders often use a shortcut instead of a full model: divide the maximum possible loss by the total width between the strikes (the distance between the option you sold and the option you bought). This gives a rough probability of success because it mirrors how the market has already priced the credit you received relative to the risk you took on.

The nuance that trips people up is that probability of profit is not the same as probability of a good outcome. A high-POP trade, like a strangle sold far out of the money, might succeed 90% of the time but lose far more than it makes on the 10% of occasions it fails. POP also assumes the option is held to expiration and ignores that most traders exit early, and it treats implied volatility as if it were a reliable forecast, when it is really just the market's current guess.