Options Profit and Payoff
Visualize profit and payoff diagrams for call and put options
Profit and Payoff Diagram
Key Points
Current Values
Understanding Buyer of Call Option
When you buy a call option, you have the right (but not the obligation) to purchase the underlying asset at the strike price before expiration.
- Payoff: Max(0, Stock Price - Strike Price) - Premium
- Break-even: Strike Price + Premium
- Maximum Loss: Limited to the premium paid
- Maximum Profit: Unlimited (as stock price rises)
- When to use: When you expect the stock price to rise significantly
Profit and Payoff Diagram
Key Points
Current Values
Understanding Seller of Call Option
When you sell (write) a call option, you are obligated to sell the underlying asset at the strike price if the buyer exercises the option.
- Payoff: Premium - Max(0, Stock Price - Strike Price)
- Break-even: Strike Price + Premium
- Maximum Profit: Limited to the premium received
- Maximum Loss: Unlimited (as stock price rises)
- When to use: When you expect the stock price to stay below the strike price
Profit and Payoff Diagram
Key Points
Current Values
Understanding Buyer of Put Option
When you buy a put option, you have the right (but not the obligation) to sell the underlying asset at the strike price before expiration.
- Payoff: Max(0, Strike Price - Stock Price) - Premium
- Break-even: Strike Price - Premium
- Maximum Loss: Limited to the premium paid
- Maximum Profit: Strike Price - Premium (when stock price = $0)
- When to use: When you expect the stock price to fall significantly
Profit and Payoff Diagram
Key Points
Current Values
Understanding Seller of Put Option
When you sell (write) a put option, you are obligated to buy the underlying asset at the strike price if the buyer exercises the option.
- Payoff: Premium - Max(0, Strike Price - Stock Price)
- Break-even: Strike Price - Premium
- Maximum Profit: Limited to the premium received
- Maximum Loss: Strike Price - Premium (when stock price = $0)
- When to use: When you expect the stock price to stay above the strike price