The payoff diagram shows how the option's total profit or loss (Y-axis) depends on underlying price (X-axis). The key variables are: Strike price (45 in the example above) Initial price at which you have bought the option (2.88 in the example) Current underlying price (the chart's X...
A call option payoff depends on stock price: a long call is profitable above the breakeven point (strike price plus option premium). The opposite is the case for a short call. A call option payoff diagram shows the potential value of the call as a function of the price of the underlying...
1) Portfolio 1 break-even. Draw the gross and net payoff diagrams for a portfolio which is constructed from buying one call option with a strike price $45.00 and selling one call option with a strike price of $50. The cost of.
Important Tip - Notice that you no matter how far the price of the stock falls, you can never lose more than the cost of your initial investment. That is why the line in the call option payoff diagram above is flat if the closing price is at or below the strike price. Also note tha...
The payoff diagram of a short call position is the inverse of long call diagram, as you are taking the other side of the trade. Basically, you multiply the profit or loss by -1. For detailed explanation of the logic behind individual sections of the graph, see long call option payoff. ...
The most attractive characteristic of owning call options is that your profit is technically unlimited. And your loss is limited to the amount that you paid for the option. Look at this call options payoff diagram and you will see what I mean. This diagram shows the payoff for owning call ...
Market Price, or Spot Price (S) – the current price you have to pay in the market for the Option. Now, if you hold a call option, and at expiration of the option the price of the underlying asset S is below the Strike Price K , the option is clearly worthless for you. It ...
In that case, the call option payoff graph will look like this:You are free to use this image on your website, templates, etc.. Please provide us with an attribution link. As one can observe, the diagram clearly shows the profits or losses of the call option’s buyer. The horizontal ...
While a payoff diagram simply graphs the cash value at any point in time during the lifetime of the option, a profit diagram shows us exactly what we have earned from the purchase of the option. We just shift the payoff graph (orange line) downwards by the accumulated premium (accumul...
Consider the payoff diagram: Image by Julie Bang © Investopedia 2019 As you can see, losses mount quickly as the price of the stock goes above the $107breakeven price. Also note that, at any price below $105, the profit for thesellerof the option remains at $200, which is the recei...