Profit Range

AAA

DEFINITION of 'Profit Range'

A range of prices that an underlying security can possess in order for an investment strategy to be profitable. For some strategies, the position taken will have two break-even points. The range between these two points serves as the profit range for the strategy.

INVESTOPEDIA EXPLAINS 'Profit Range'

When designing a strategy, the profit range is a useful metric for investors when they compare it to the volatility of the underlying asset. It allows investors to match profit ranges with appropriate volatilities. Large ranges should be used with high volatility assets and vice versa. A mismatch of volatility and profit range tends to lead to a loss on the position.

RELATED TERMS
  1. Breakeven Point - BEP

    1. In general, the point at which gains equal losses. 2. In options, ...
  2. Moneyness

    A description of a derivative relating its strike price to the ...
  3. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  4. Profit

    A financial benefit that is realized when the amount of revenue ...
  5. Strangle

    An options strategy where the investor holds a position in both ...
  6. Straddle

    An options strategy with which the investor holds a position ...
RELATED FAQS
  1. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  2. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  3. When does the holding period on a stock dividend start?

    The holding period on a stock dividend typically begins the day after it is purchased. Understanding the holding period is ... Read Full Answer >>
  4. How can a company execute a tax-free spin-off?

    The two commonly used methods for doing a tax-free spinoff are either to distribute shares of the spinoff company to existing ... Read Full Answer >>
  5. How are American Depository Receipts (ADRs) priced?

    The price of an American depositary receipt (ADR) is determined by the bank or other financial institution that issues it. ... Read Full Answer >>
  6. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
Related Articles
  1. Active Trading Fundamentals

    Tips For Controlling Investment Losses

    A profit/loss plan helps investors recognize mistakes and invest logically, rather than emotionally.
  2. Active Trading Fundamentals

    The Stop-Loss Order - Make Sure You Use It

    It's a simple but powerful tool to help you implement your stock-investment strategy. Find out how.
  3. Options & Futures

    Investing 101: A Tutorial For Beginner Investors

    Do want to invest, but don't know how to begin? We'll show you the building blocks you need to get started.
  4. Investing

    Some Overseas Markets May Prove More Resilient

    Though global markets sold off and have continued to slip in recent days, stocks in Europe and Japan are still faring better than their U.S. counterparts.
  5. Investing

    The Number One Reason Why Most Traders Fail

    We show you the simple tools, availble to everyone, to succeed as an active trader: education, experience, charts, vision, and risk management systems.
  6. Investing

    Is There Still Opportunity in Japanese Stocks?

    Japanese stocks’ strong performance has prompted market watchers to question whether there’s still a case for adding exposure to the Land of the Rising Sun
  7. Credit & Loans

    Why Securities-Based Lending Became A Big Business

    Securities-based lending—using one's investments as collateral to secure a loan—has become big business for brokers and banks. Should we be concerned about its increasing popularity?
  8. Economics

    Do Transport Stocks Signal a U.S. Selloff?

    The Dow Jones Transportation Average index has underperformed the broader DJ Industrials Average, leading some market watchers to speculate a selloff.
  9. Investing Basics

    Explaining Counterparty Risk

    Counterparty risk is the risk that the other party in an agreement will default, or fail to live up to its contractual obligation.
  10. Investing

    What Can A Conference Call Tell About Trends?

    Messages in a company conference call can be easily misconstrued. But there is a way to cut through the talking points to get to the real substance.

You May Also Like

Hot Definitions
  1. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  2. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  3. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  4. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  5. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  6. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!