Sometimes, I get ahead of myself in these Options 101 articles. I forget that when I first traded options and most needed 101 articles, I didn't have much experience with expiration graphs or the Greeks of options trading. In the past, I've written articles on the basics of Greeks of options trading that can be referenced from the archives. I needed a basic article on reading an expiration graph.

What is an expiration graph? Let's look at an example, this one from OptionNet Explorer.

Expiration Graph for an OEX FEB 21 In-the-Money Call Credit Spread, as of 1/07/14 at 2:20 pm CT:

What can we learn from almost all expiration graphs for options positions, including the ones produced by OptionNet Explorer? The dark blue line is the expiration graph, how the trade's profit-and-loss line will look at expiration. It reveals the profit or loss of the position at each price point of the underlying at expiration. I've configured ONE so that two-way commissions of \$1.25/contract are included, but not all charting services allow the trader this choice.

From that expiration graph, we can determine the expiration breakeven(s), the price the underlying would have to be for the trade to break even at expiration. That's 816.71 for this position. If the OEX is at 816.71 at expiration, the trade breaks even. If it is below 816.71 at expiration, the trade loses money. If it is above 816.71 at expiration, the trade makes money. If the trader's charting program doesn't allow the inclusion of commission costs, the trader would have to calculate the amount spent on commissions, both to enter and exit the trade, divide that by the 100 multiplier for most listed options, and add the resulting amount to the expiration graph's breakeven to determine the actual breakeven. Also remember that although this trade, a vertical, has only one breakeven, some trades, such as iron condors, calendars and butterflies, would have two expiration breakevens, a downside one and an upside one.

We can determine that the maximum profit is \$345 by positioning the cursor at the maximum gain and can also determine that the maximum loss at expiration is \$655.00. In the case of this vertical, the maximum loss was the position's cost, including two-way commissions. That's not always true, but the expiration graph will show us the maximum loss. If we were using think-or-swim's "Analyze" page, we could obtain the same information.

In addition, we can learn from this graph what the profit-and-loss for the position would be on the current ("today" or "T+0") day for each price of the OEX. This is made visible by the lighter-colored line, a curvy line in this case. For example, the trader who wants to determine what the trade's gain would be if the OEX jumped up to 850.53 before the close that afternoon--admittedly an almost impossible feat--the cursor would be positioned along the horizontal line at 850.53, the OEX's theoretical price.

Theoretically, the profit would rise to \$279.00 if the OEX were to rise to 850.53 that same afternoon. Since the maximum gain is \$345.00, that trader might be willing to take a \$279.00 gain in one afternoon, a 43 percent (of the max margin in the trade) gain if he should be so lucky as to see the OEX jump that high.

We cannot tell from this graph, however, or any other expiration graph for options positions that I know about, the prices of the individual options at any price point. The profit and loss is for the entire position. We would have to set up an expiration graph for each individual component if we wanted to see the prices for each component at each price point. I've seen people isolate component positions on separate expiration graphs, such as separating the iron condor portion and the call debit spread portion of a complex options trade in order to understand how each works. No charting programs that I know about isolate each option, and I don't personally know of traders who choose to isolate each option on a separate expiration graph, either, although I can imagine that someone wanting to learn more about the skews in options might do so.

Most expiration graphs allow us to roll the date forward ("Projection" slot on ONE), and change the volatility ("Volatility Adjust"). This would allow traders to see how their profit and loss line would change over a week's time, for example, or if the implied volatility of the options increases or decreases. When I used OptionsXpress, even their more elementary expiration graphs allowed that kind of manipulation.

What we might or might not be able to tell, depending on the source of the expiration graph, is what a one-standard deviation move would be for a day. When I used freeware OptionsOracle, I could see a one-standard deviation move. On the graphs above, the dark blue vertical column shows a one-standard deviation move for a day. If I rolled the date forward a week, it would show a one-standard deviation move for a week. Think-or-swim has something similar, but I certainly can't verify that 100 percent of expiration graphs have this ability.

ONE lists the options positions themselves on a sidebar on the left-hand side of the expiration graph, as well as to the side on a different part of the page that I haven't included in the snapshot. The sidebar can be eliminated, if the trader wishes, but some traders like to be reminded of the positions involved. I don't know of other charts that do this. Think-or-swim's Analyze page, however, includes a listing of the involved options positions below the graph. When I used freeware OptionsOracle to produce my expiration graphs and test various strategies, the platform listed the included options on a different page, but the two pages could be viewed simultaneously.

ONE's graph lists the Greeks of the individual options in that sidebar. It lists the Greeks of the entire position in the graph below the expiration chart. Think-or-swim includes the Greeks of the entire position below the graph, too, allowing the trader to type in a value for the underlying and pull up all the Greeks for the position at that value. I don't remember OptionsXpress allowing this capability, but it's been a while since I've used its expiration graphs.

These are just a few of the things that can be learned from expiration and profit-and-loss graphs. Can you trade options without them? Of course. I did for years, but I also used to tabulate the costs of all my options and do my subtraction and addition manually to come up with my expiration breakevens. I can do that, but why should I? I can even tabulate the current Greeks, but factoring in the passage of time and a change in volatility and the price of the underlying makes that calculation quite complex. Back in my physics major days, I happily performed calculations that required reams of paper, but now I'd rather practice the piano than do that. I might pull my hair out if I had to recalculate my expiration breakevens every time I made an adjustment, for example.

If you use a platform that doesn't allow for backtesting, you can use such expiration graphs to perform "what if" testing for theoretical ("simulated" on think-or-swim) positions. What if two weeks from now, there's a sudden drop in the underlying's price with a sharp rise in volatility? What would that do to the position? What if I carry this position into expiration week? What will that look like? Of course, such theoretical explorations provide you with "theoretical" answers, too, and we know that live trading can be much different than theory tells us it will be. Backtesting or theoretical testing has its limits, especially if your theoretical trading doesn't allow you to include some slippage. Still you can learn much from these "what if" explorations using expiration and/or profit-and-loss graphs.

If you're interested, check with the support group at the brokerage you use to determine if that platform includes such graphs. Watch videos or read explanations of how to use that platform's version.