The options profit simulator is free strategy calculator that simulates placing 10,000 options trades with identical criteria. In fact, a few months ago I created a similar options expectancy tool that I included with my vertical spread spreadsheet tracker. The options profit simulator is essentially the same tool, at 10 times the number of trades. Furthermore, this simulator includes several popular management approaches.
Here is a link to the free options simulator.
For some, the options simulator may be useless, for others it will paint a clear picture of what a trader could realistically expect from a given strategy, in the future. For me, and hopefully others, it removes any anxiety I have about a losing trade. Since I can now see that mathematically (and graphically) given the correct probabilities and appropriate risk/reward, profitability will follow.
Lets walk through the spreadsheet to understand it clearly. However, if you have any questions or if something doesn’t make sense feel free to reach me in the comments anytime.
What options strategies can be tested using the Options Profit Simulator?
Long Vertical Spread – Call or Put
Short Vertical Spread – Call or Put
Long Iron Condor
Short Iron Condor
Long Condor – Calls or Puts
Short Condor – Calls or Puts
I’m certain this list isn’t exhaustive. Moreover, the simulator is useful for any strategy with a defined risk/reward profile.
How to enter trades into the simulator?
Start by identifying any strategy that has a defined risk/reward profile. Once that is determined, you’ll need a few critical pieces of information to perform the simulation.
- Maximum profit
- Probability of Profit (POP)
- Spread width
- Long or short position
- Commission cost – roundtrip
First, enter the spread width in the long or short yellow box as shown below.
Next, determine the maximum profit potential to enter into the yellow profit box as shown below.
Additionally, you’ll need the probability of profit. Although, depending on your broker this information may not be easily identifiable. If that is the case, you can use OptionsProfitCalculator.com to determine the probability of profit. Simply select the desired strategy, enter the required contract details and calculate. Your results should look similar to the image below.
Image courtesy of OptionsProfitCalculator.com
Additionally, for those using ThinkorSwim or TastyWorks, the POP is easily identified using the analyze tab in ThinkorSwim or via the order entry dialogue on TastyWorks. Each are shown below. For more information on how to use the ThinkorSwim analyze tab to identify probability of profit please view this post on Bull Call Spreads.
Final Steps and Run the Simulation
With that required information the Options Profit Simulator will calculate the results as if that exact trade had been placed 10,000 times and return a cashflow graph as well as the total net P/L for the strategy. Additionally, the simulation will take into account any commission costs. Simply enter that figure into the appropriate box shown below.
Round Trip Commission Cost
Finally, the results will look similar to the image below. Moreover, prepare to be shocked at the trades you’ve taken and their expectancy over time. At the same time, its interesting to point out, not all high probability trades are good trades.
Trade Management
Finally, the simulation wouldn’t be complete without adjusting for different management styles. From the results image above you’ll see that in only one management style did this trade prove profitable. Similarly, its almost never advantageous to close a position with a 50% profit while letting losing positions run to a maximum loss.
Moreover, managing a position at 75% profit or 50% loss is almost always the most profitable approach.
Options Profit Simulator Final thoughts
To summarize, you’ll need 4 pieces of information and a determination of whether the position is long or short. From there the spreadsheet will do the rest. Thus, you’ll see first hand how the selected strategy would stack up over time. However, should you encounter an error don’t hesitate to reach me in the comments below.
Additionally, if you find value in your use of the spreadsheet please do consider subscribing to my youtube channel here to keep up to date with everything happening at OptionBoxer.com.
God bless,
Jeff
