Reading risk

Before you trade, you should be able to say three things: the most you can lose, the price you need to break even and what you gain if you are right. The Analysis panel calculates them for you. This page explains how to read them.

Max loss#

Max loss is the worst case from the moment you open the position until expiry, including the fee estimate.

• If you buy a call or a put, max loss is the premium you pay plus fees. You cannot lose more.
• If you sell a put, the loss grows as the underlying falls, up to the strike minus the premium you collected, times the size.
• If you sell a call, there is no cap on how high the underlying can go, so the loss is unlimited.

When the panel says Unlimited, treat it as a hard stop sign.

Break-even#

Break-even is the underlying price at expiry at which you neither gain nor lose. For a long call it is the strike plus the premium. For a long put it is the strike minus the premium. Fees move it slightly against you.

If the break-even is far from the current price, the market has to make a large move before you profit at expiry.

At expiry and today#

The solid line shows what the position is worth at expiry. It is exact. The softer curve shows what the position is worth today under the model. Today's curve is smoother and sits above the expiry line for long options because they still carry time value. Time value fades as expiry approaches, which is theta.

The gap between the two curves is a useful sanity check: the closer you are to expiry, the closer they sit.

Position size and margin#

Max loss is not the same as margin. Margin is what the venue holds against a position, and for a short option it can change as the market moves. Max loss is a property of the payoff. The ticket shows both so you can see the difference. Read Fees and margin.