A graphical representation that displays the range of profit or loss potential for an equity or an option.
The x-axis represents the price of the underlying security and the y-axis represents the potential profit/loss of the position.
Often called a P&L graph or a profit/loss diagram, this graph provides an easy way to understand and visualize the effects of what may happen to an equity an option based on estimated or known variables.
Risk graphs can be drawn to show the potential gains/losses for single options as well as for multiple leg strategies like spreads or any other combination strategies.
