What is the Probability of Profit (POP)?
The Probability of Profit, or more commonly referred to as POP, is the theoretical probability of your equity/ETF position(s) making at least $0.01 on a trade. POP derives from a set of variables such as position type, whether you are long or short, time, and volatility (for the distribution curve).
What is the Equity Probability of Profit (ePoP)?
The Equity Probability of Profit (ePoP) is the theoretical probability of profit of your portfolio's equity/ETF positions (stock & options) making at least $0.01. ePoP does not apply to futures or futures options positions.
Where can I view POP or ePoP?
Profit Probability displays two different ways–a per position level or portfolio level
You can view your Equity PoP, or ePoP, by adding the column to your Account Header Details on the desktop platform.
How do you calculate POP & ePoP?
Currently, PoP graph view is only available on the web-browser platform. We plan on extending this feature to the desktop platform with future updates. That said, both calculation methods use the portfolio's beta-weighted symbol. By default, the platform beta-weights to SPY. To learn how to change your portfolio's beta-weighted symbol, please click here.
Single Underlying (POP)
When viewing the POP of a single underlying, POP bases it on a simple P/L graph of the underlying. The example below illustrates a single iron condor. Furthermore, a distribution curve based on the portfolio's beta weight is applied (default is SPY). That means if you have a position with a 7-days-to-expiration (DTE) option and a 21 DTE option, then the POP calculation will use the 21 DTE distribution curve (or the volatility index) of the portfolio's beta-weighted symbol. As a result, the total area under the distribution curve when profit goes to 0 equals 1 (shaded yellow) The beta-weighted area in the distribution curve where the position generates a profit (shaded green) is subtracted from 1, thus producing the POP.
Multiple Underlyings (ePoP)
When viewing portfolio ePoP of a portfolio, a single P/L graph of the portfolio generates based on the portfolio's beta-weighted symbol (default is SPY). Similar to the way a single underlying P/L graph generates, the total area under the distribution curve (or volatility index) when profit goes to 0 equals 1 (shaded yellow). The beta-weighted area in the distribution curve where the portfolio generates a profit (shaded green) is subtracted from 1, thus producing the ePoP.