How Do I Calculate My Profit Goal?

One of the most frequent questions I get from my mentoring students is how to calculate where to exit a trade for your profit goal. Some trades have margin while others don’t and some trades are debits and some are credits.

This can all lead to confusion as to what a closing order should be.

Ignoring commissions for this example, if you have a trade that costs $250 debit and the margin is $1000 what would you want to sell it for to make 10%?-
The trade cost you $1250 so you need $125 ($1.25) more than you paid you make 10%. So $2.50 you paid + $1.25 is $3.75. $3.75 is your sell price for 10% profit.

Credit and Margin

If you have a trade that gives you a $250 credit and the margin is $1000, what would you want to sell it for to make 10%?-
$1000 in margin minus $250 target = $750 which is the cost of the trade.

So you need to buy back this credit spread for $75 or .75 less than you paid for it. So if sold at a $2.50 credit, the closing target is $1.75.

Add Commissions

You can simply add in your commissions to the cost of the trade and set your closing order appropriately.  I hope this helps traders with this frequent question.

Mark Fenton

options trading courses

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  1. […] a successful options trader is to have a plan. The plan is what will I trade, how will I trade it, what will my profit goal be and what will my max loss […]

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