You can use Robinhood’s Simulated Returns to analyze options trades from an options chain, open options positions, or those in your watchlist. This tool helps you visualize how your options returns could change over time and how movements in the underlying stock price can affect the value of an options contract or multi-legged options strategy. Exploring how different factors affect your returns can help you find times to enter or exit.

The tool estimates returns based on the Bjerksund-Stensland model for options on stocks and ETFs and the Black-Scholes model for index options.

The tool uses the following information to simulate pre-trade and post-trade returns.

• Strike price: Defined by the options contract or strategy.
• Implied volatility: Calculates the current implied volatility based on the option’s market price.
• Risk-free interest rate: Uses the interest rate of a treasury bond with a term similar to the time left on the option.

Additionally, you can toggle the tool to evaluate pre-trade simulated returns over time or over underlying price movements:

• The underlying stock price: Defaults to the current price for when you open the tool. You can adjust the price by moving it in the chart along the x axis. You can adjust the time by using the slider under the chart.
• Time until expiration: Also defined by the options contract or strategy. You can use the graph to evaluate the effect of time decay on your position. You can adjust the time by moving it in the chart along the x axis. You can adjust the price by using the slider under the chart.

The tool’s model assumes the implied volatility and risk-free interest rate will stay the same. However, changes to these factors can affect the price of your options. For example, implied volatility can change significantly over time, especially around earnings.

Both factors are set when you open the tool, and won’t dynamically update while it’s open.

You can simulate the returns of an options strategy from an options chain, an open position, or those in your watchlist. You can analyze both single-leg and multi-leg positions.

Pre-trade in App with Level 2

As a Level 2 options trader, you can access the experience from your watchlist or through the focused view or side-by-side view of options chains.

Focused view

1. Open an options chain in the focused view, and then select the contract to open Stats
2. Select Simulate Returns to view them
3. Slide the price or time slider to simulate potential gains and losses
4. Press and hold within the graph to adjust the x axis and simulate returns

Side-by-side view

1. Open an options chain in the side-by-side view, and then long press the contract price to view Simulated Returns
2. Slide the price or time slider to simulate potential gains and losses
3. Press and hold within the graph to adjust the x axis and simulate returns

Pre-trade in App with Level 3

As a Level 3 options trader, you can access the experience from your watchlist or through the side-by-side or the focused view of options chains.

1. Open an options chain in either the side-by-side view or the focused view
2. Select the price for the contract, and then swipe from the bottom of the page to simultaneously view the simulated P/L chart
3. Slide the price/time slider to simulate potential gains and losses
4. Press and hold within the graph to adjust the x axis and simulate returns

Watchlist or open positions

Simulated Returns for open positions or those in your watchlist are available through the app or in web classic:

1. Go to an options detail page, and then select Simulate my returns

2. Adjust the price dial below the chart to see how changes in the underlying stock price can affect your returns

   

3. Drag your finger (in the app) or cursor (on the web) in the chart to evaluate how your returns can change over time

4. To switch between price and percentage returns, select the double-arrow button next to the price

Robinhood’s Simulated Returns tool doesn’t display actual returns, but possible returns based on the effects of stock movement and time decay. The results shown in this tool are hypothetical and only as accurate as the tool’s model and inputs. This tool may lead to inaccurate conclusions due to insufficient or incorrect variables, incorrect assumptions, and accuracy of source data. Although this tool can help you make investment decisions, it doesn’t reflect actual investment results or guarantees of future results.

Be aware of the risks associated with your specific options strategy, as options trading and certain options strategies are not appropriate for all investors. Options transactions are often complex and may involve the potential of losing the entire investment in a relatively short period of time. Certain complex options strategies carry additional risk, including the potential for losses that may exceed the original investment amount. To learn more about the risks associated with options, read the Characteristics and Risks of Standardized Options before you begin trading options.

Because of the importance of tax considerations to all options transactions, consult your tax advisor about how taxes affect the outcome of each options strategy. Also be aware of the risks listed in Day Trading Risk Disclosure Statement and FINRA Investor Information. Examples included in this article are for illustrative purposes only.