Putting all this together for all possible stock prices gives the following payoff graph: The horizontal x-axis is the stock price at expiry. Short Call Option Payoff What if the trader had sold the call option rather than bought it, hoping that the stock would not rise above 100 and...
As you can see in the graph, the option's strike price (45.00) is the key point which divides the payoff function in two parts. Below the strike, the payoff chart is constant and negative (the trade is a loss). Above the strike the line is upward sloping, as the call option's pay...
A call optionis called a "call" because the owner has the right to "call the stock away" from the seller. It is also called an "option" because the owner of the call option has the "right", but not the "obligation", to buy the stock at the strike price. In other words, the o...
The diagram would look like this: As you can see from the above graph this is a typical payoff of a covered call option (the definition of a covered call is that it is a combination of a long position in the stock (in our case because of the conversionLong...
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 ...
Just like selling a call option, a put option sale means the seller receives the premium up front at the time of trade and keeps this amount no matter what the outcome of the option. You might think that selling put options is very risky when looking at the payoff graph as the downside...
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 makes no sense to buy the asset for the higher strike price K, if you can turn around and buy it for...
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. ...
option. We just shift the payoff graph (orange line) downwards by the accumulated premium (accumulated by the risk free rate) at time T (the so called “future value of the premium of the call option at time T). By doing this we arrive at the profit graph (dark blue line) Exhib...
Real options on F can have E or S drivers: payoff in terms of F, but with E or S as the underlying values. For example, a CO2 price or a methane tax could bring a real option in-the-money by increasing its PV of cash flows. In the extreme, the underly- ing value of E or ...