Options Payoff Lab
Before the profit potential,find your break-even and your max loss.
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Sign inThis Lab draws the payoff of an option you have bought. You choose a call or a put, set the strike price and the premium you paid, and the chart shows your profit or loss at expiry across a range of underlying prices. It also shows the break-even and the maximum loss. A payoff diagram does not predict where the price goes. It maps every if-this-happens-then-this-is-your-result case.
How to use this Lab
- Choose Bought call or Bought put.
- Set the strike price, from ₹100 to ₹3,000.
- Set the premium paid, from ₹5 to ₹200.
- Read the chart: the line is your profit or loss at expiry for each price of the underlying.
- Read the two cards: the maximum loss, and the break-even.
What to notice
- Find break-even and max loss first
- Before looking at the profit potential, find the break-even and the maximum loss. Those two numbers tell you the shape of the trade.
- The loss is capped at the premium
- However far the price moves the wrong way, a bought option never loses more than the premium paid. The flat part of the line on the left of a call, or the right of a put, is that cap.
- Calls and puts mirror each other
- A bought call gains as the price rises above the strike plus the premium. A bought put gains as the price falls below the strike minus the premium. Switch between them and compare the shapes.
A bought call and a bought put (hypothetical, per unit, at expiry)
A bought call with a strike of ₹1,000 and a premium of ₹40 has a break-even of ₹1,040 (strike plus premium) and a maximum loss of ₹40. If the underlying ends at ₹1,100, the payoff is ₹100 less the ₹40 premium, a profit of ₹60. If it ends at ₹950, the option expires worthless and you lose the ₹40.
A bought put with the same strike and premium has a break-even of ₹960 (strike minus premium). If the underlying ends at ₹900, the payoff is ₹100 less the ₹40 premium, a profit of ₹60.
What this Lab does not show
- The Lab shows the result at expiry only. Before expiry, an option's price also depends on time left, volatility and other factors, which the Greeks describe.
- It shows a bought option, one unit, and does not include lot size, brokerage, taxes or charges. It does not show sold options, where the possible loss is not capped at a premium.
- It does not recommend any option, strike or trade. Maetis does not give trading advice.
Common questions
- What is a payoff diagram?
- A chart of your profit or loss at expiry for every possible price of the underlying.
- How do you calculate the break-even of a bought call?
- Add the premium to the strike price. Below that price at expiry the trade loses money, and above it the trade profits.
- What is the maximum loss on a bought option?
- The premium you paid. It cannot lose more than that, however far the price moves against you.
- Does the payoff diagram tell me which way the price will go?
- No. It maps every possible outcome. It says nothing about which is likely.