PAYOFF CHARTS

CALL AND PUTOPTIONS

SCHOLAR DR.MEENAKSHISUNDARAM
SENIOR GUIDE DR.ESWARAN
GUIDE DR.SARVAVINOTHINI
 PAYOFF CALL AND PUT OPTIONS

Option payoff charts are profit and loss

charts that show the expected profit/loss
we may face on option buying or selling
or combination of options
buying/selling.
Here we are discussing the potential
profit or loss on buying or selling either
a CALL OPTION or PUT OPTION in
isolation
PAYOFF CALL BUYING
PAYOFF CHART CALL BUYING
 PAYOFF CALL BUYING

ASSET PRICE FALLS BELOW STRIKE PRICE

Netloss limited to premium paid
 PAYOFF CALL BUYING

ASSET PRICE ABOVE BREAKEVEN POINT

Profit undefined as the asset price rises
Net Profit is (option selling price-buying price)
deducting the initial premium paid
 PAYOFF CALL BUYING

Breakeven point is strike price plus premium

paid
BETWEEN STRIKE PRICE AND BREAKEVEN POINT
Netloss is premium-(buying price/selling price
difference)
PAYOFF CALL SELLING
PAYOFF CHART CALL SELLING
 PAYOFF CALL SELLING

ASSET PRICE FALLS BELOW STRIKE PRICE

Netprofit limited to premium received
 PAYOFF CALL SELLING

ASSET PRICE ABOVE BREAKEVEN POINT

Loss undefined as the asset price rises
Net Loss is (option selling price-buying price) deducting the initial
premium paid
 PAYOFF CALL SELLING

Breakeven point is strike price plus premium

received
BETWEEN STRIKE PRICE AND BREAKEVEN POINT
Netprofit is premium-(buying price/selling
price difference)
PAYOFF PUT BUYING
 PAYOFF PUT BUYING
 ASSET PRICE FALLS BELOW STRIKE PRICE
NETPROFIT LIMITED TO PREMIUM
BREAKEVEN POINT IS STRIKE PRICE PLUS
PREMIUM PAID
 SO BETWEEN STRIKE PRICE AND BREAKEVEN

POINT
NETLOSS IS PREMIUM-(buying price/selling price
difference)
 ASSET PRICE ABOVE BREAKEVEN POINT

LOSS UNLIMITED AS THE ASSET PRICE RISES NET

PROFIT IS (option selling price-buying price)
deducting the initial premium paid
PAYOFF PUT BUYING
PAYOFF CHART PUT BUYING
 PAYOFF PUT BUYING

ASSET PRICE FALLS BELOW STRIKE PRICE

Profit undefined as the asset price rises
Net profit is (option selling price-buying price)
deducting the initial premium paid
 PAYOFF PUT BUYING

ASSET PRICE ABOVE BREAKEVEN POINT

Netloss limited to premium paid
 PAYOFF PUT BUYING

Breakeven point is strike price minus

premium paid
BETWEEN STRIKE PRICE AND BREAKEVEN POINT
Netloss is premium-(buying price/selling price
difference)
PAYOFF PUT SELLING
PAYOFF PUT SELLING
PAYOFF CHART PUT SELLING
 PAYOFF PUT SELLING

ASSET PRICE FALLS BELOW STRIKE PRICE

Loss unlimited as the asset price falls
Net loss is (option selling price-buying price)
 PAYOFF PUT SELLING

ASSET PRICE ABOVE BREAKEVEN POINT

Profit limited as the asset price rises
Net profit is the initial premium received
 PAYOFF PUT SELLING

Breakeven point is strike price minus

premium received
BETWEEN STRIKE PRICE AND BREAKEVEN POINT
Netprofit is premium-(buying price/selling
price difference)
 Six commandments of OPTIONS
payoff
Option Pay off… Max Loss and Max Profit…

 1. Option Sellers (Call & Put) - Profit is limited to premium received, while
loss is undefined

 2. Option Buyers (Call & Put) - Loss is limited to Premium Paid, while profit is
undefined

Option Pay off - Breakeven:

 3. Call Traders ( Buy & Sell) - Breakpoint is STRIKE + Premium

 4. Put Traders ( Buy & Sell) - Breakpoint is STRIKE – Premium

 5. Option Sellers (Call and Put) profit is capped when asset spot = Strike Price

 6. Option Buyers (Call and Put) loss is capped when asset spot = Strike Price
THANK YOU