POP is not a prediction

Probability of profit is the number retail options traders quote most confidently and understand least. It shows up in every strategy screener, gets repeated in every thread, and is treated like a verdict — as if 70% POP meant this works seven times out of ten for me.

It doesn't. Here is what it actually is, and how I use it.

What it measures

POP is the output of a model. Feed it the current option chain — the volatility surface, the strikes, the time left — and it estimates the probability that the position ends inside the profit zone at expiration.

That's it. It's a forecast under assumptions. The assumptions are the vol surface as it is today, and a distribution of future prices that is, at best, a decent approximation of how markets actually behave in the tails.

What it doesn't

• It isn't a win rate. A 0.69 POP does not mean you'll profit on 69% of trades that look like this one. It means the model prices a ~31% chance of ending outside the profit zone — and that chance was real at the moment you clicked.
• It isn't a promise about your account. It says nothing about position size, about what happens if the vol surface moves, or about whether you have the discipline to hold the plan you wrote.
• It isn't direction. It has no opinion about where the underlying goes, and it can't — direction is the unquantifiable part. It's also the part you're actually betting on.

The honest version of the tradeoff

Higher POP usually means accepting a worse risk/reward. You can sell a far strike for a very high POP and a large, low-probability loss; you can sell close for a small credit and a coin flip. POP alone tells you nothing about which of those is appropriate — that's a decision about your account size and how much variance you can survive, not a probability.

How I use it

As a filter and a sizing input, never as a reason to trade:

1. As a price check. If the credit looks thin relative to what the model says the risk is, the trade is bad value regardless of how the payoff chart looks. That's a pricing decision.
2. As a sizing input. Lower POP means the bad outcome is more likely, so the position has to be smaller — not "still fine because 60% is a majority."
3. As a pre-mortem. Reading the complementary number (the chance of the loss) out loud before entry is the cheapest risk-management tool that exists.

The rule I'd give anyone

Never let POP be the reason you take a trade. Let it be the reason you size it.

The probability is real information. Treating it as a prediction is where it turns into fiction — and fiction is expensive in this business.