Option Trading Risk Graphs

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Option Trading Risk Graphs - Definition
Risk Graphs, sometimes known as a risk/reward diagram or profit/loss diagram, is a chart that presents the profit or loss of an option across a spectrum of prices.

Option Trading Risk Graphs - Purpose
1. To instantly evaluate the risk / reward characteristics of an option trading strategy.

2. Pin pointing at a glance where the areas of highest gains and losses are.

3. To identify option trading strategies with similar risk / reward profiles, making synthetic positions easier to create.

Option Trading Risk Graphs - 2 Types
There are 2 main types of option trading risk graphs. Profile Risk Graphs and Detailed Risk Graphs.

Risk Graphs - Profile Risk Graphs

long straddle risk graph long call risk graph

Risk Graphs - Detailed Risk Graphs

risk graph - detailed risk graph

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Option Trading Risk Graphs - Elements
Risk Graphs are simple diagrams made up of 2 axis and a line representing option price at various stock prices. The horizontal axis or X-Axis represents stock price and the vertical axis or Y-Axis represents option profit or loss.

risk graph elements

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