Open P&L (Profit & Loss): What Is It And Why Do You Need It?

   

What is the “Open P&L (Profit And Loss)?”

Open P&L: Have you ever wondered what the abbreviation ‘P&L’ means? I see this all the time in the titles of YouTube videos and on social media. The P&L is just a short and easy way of saying the Profit and Loss of your position at the current market price.

As the market prices of stocks or other assets like options or cryptos change throughout the session, so too will your Open P&L number. Don’t be alarmed by wild swings: it’s not unusual for your P&L to change by hundreds or even thousands of dollars throughout the day!

Here’s A P&L example I Like to Use:

Let’s say you bought shares of a stock for $100.
The current price of the stock is up to $105. Great!
This means your ‘Open P&L’ is $5.00 per share.
If the price of the stock drops to $98, then your ‘Open P&L’ is -$2.00 per share. Make sense? 

You might be more of a visual learner, so here’s a screenshot I took to show you guys another example of P&L:

Open P&L

Why do you need the “Open P&L?”

The Open P&L provides the fastest overview of the value of the current open trade positions in your portfolio. 

It’s a very quick way of seeing if your positions are making or losing money at that moment. 

But in my mind, the Open P&L can also be very misleading, because as long as the trade is open, it will be constantly changing. 

The only true time to see the current value of your trades is either when you sell and you realize a profit or loss, or after the trading day is over – in which case your P&L will not change until the markets open again. 

Should you pay attention to the “Open P&L?”

Let me use a sailing metaphor here because both of my children are sailors.

Here is how a sailing regatta work:

A regatta usually takes place over 2-4 days, and on each day there are several different races. 

Typically, there are between 3-5 races per day. So this means that some regattas have 6 races, while others have 10-12 races. Are you still with me?

The winner of the regatta is actually the sailor with the lowest score. 

If you have a 1-1-1-1, this means you won four races and have a total score of 4. I know, it’s not the usual way we think about keeping score in sporting events.

But the point is, while a regatta is going on, the scores for each sailor are changing ALL THE TIME!

A proud dad moment here: The picture above is my daughter Vivian competing in a National Sailing Regatta in Buzzards Bay. 

Here’s an example if you want to follow along:

Back in 2019 my son Julius competed at The Chubb U.S. Junior Championship. 

At one point, they had completed 4 out of the 9-10 races for that regatta. At that time, Julius and his skipper Lucy were in 6th place. But this would change!

As more races happened, the ranking of each sailor changed to reflect the latest results. 

It’s alway fun to watch the rankings change throughout the day, but nobody will know the final results until all of the races are complete. Sound familiar?

It’s just like with trading: When you have an open position, you can watch your Open P&L all day long. But it doesn’t matter! 

You will only know how much money you have made or lost once you close the trade

Summary

My suggestion is not to watch your Open P&L while you trade. It will drive you crazy to see it swing so much during the day.

I have been in trades that lose for the first few days, then they turn around so I can exit them with a profit. 

On the flip side, I’ve been in trades that jumped higher right away, but then sharply fell and I had to exit them at a loss.

Long story short:

Don’t celebrate your day to day Open Profits and don’t get upset about your Open Losses. Everything can change very quickly. 

Being #6 out of 20 boats in The Chubb U.S. Junior Championship was a big deal!

Sailors from all over the country had to qualify through another regatta to be able to participate here.

So Julius and Lucy were sailing against the best sailors in the country.

Looking at the scores during the regatta is like looking at the “Open P&L” of your trades:

It’s fun and entertaining, but it doesn’t matter… yet.

Hope this helps and thanks for letting me be a proud dad while also teaching you about trading! 

Read Next: The Complete Beginner’s Guide To Options Trading – Options 101



Related Posts

How To Sell Put Options: Margin Requirements Explained

How To Sell Put Options: Margin Requirements Explained

Wheel Option Strategy: Selling Calls Before Expiration?

Wheel Option Strategy: Selling Calls Before Expiration?

How To Pick The Best Stock For Selling Options

How To Pick The Best Stock For Selling Options

How To Find The Best Strike Price To Sell Covered Calls

How To Find The Best Strike Price To Sell Covered Calls

Leave a Reply


Your email address will not be published. Required fields are marked

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}