Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks

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Even for a single option trade like that of Example 1, a risk graph can prove useful in making decisions about exiting a trade. Knowing that the option will achieve a profit only if the stock price rises by a certain amount before a particular date can be crucial information.

For trades with multiple options, particularly where the options have different expiration dates, the risk graph provides information that is very difficult to otherwise determine. In Example 2, the existence of a profit zone between $33 and $38 would be a mystery without the benefit of the risk graph.

Note in both of the examples that the point on the initial time line corresponding to the stock price at the time of entry lies slightly to the left of the zero ...