Profit Loss Graphs
Profit loss graphs are an easy and quick way to understand many things about a trade/position. It shows what you have to risk and what your reward is. One of the things that I like the most about these graphs is the ability to SEE what will happen if the stock goes up or down. The vertical axis is the amount of money that is profit or loss. The horizontal axis is the price of the stock. Most stock and option programs create these graphs for you. In Ameritrade and Think or Swim they are known as Risk Graphs and in Charles Schwab they are P/L (Profit/Loss) Graphs.
In each subsection of Profit Loss Graphs, I will build off the explanations from previous sections, so I suggest going in order
In all the examples I used 100 shares of SPY, when it was trading around $200.
Bob Bullock
Contributing Writer