Breakeven Analysis: Model Time and Volatility /Date21 Aug 2019/Posted ByDavid Love/Comment0/CategoriesUncategorized The profit if the strategy is closed prior to expiry can optionally be displayed for five dates (time slices) simultaneously on the payoff diagram. The impact of volatility changes after the deal has been entered into but prior to expiry can then be dynamically modelled by clicking a spin button. The results are shown graphically, as above, and also in table form. In the tables the original strategy, the adjusted strategy, and the difference between them (ie the volatility impact) are shown next to each other for each of the five discrete dates to expiry. Negative impacts are shown in red thereby making it easy to see the impacts of changes in volatility on volatility-sensitive strategies such as calendar spreads and strangles. A breakeven analysis is produced for each of the five time-slices showing all breakeven points and the probabilities of falling within the breakeven bands. The impact of future changes in volatility on the breakeven points can be dynamically modelled. In the example pictured above – which has two breakeven points – the analysis would show the probability of falling below the lower point, the probability of being between the lower and the upper point, and the probability of being above the upper point, for each of the six time slices between now and expiry. Like this:Like Loading... featured