A-04Article

Options basics: payoffs before strategies

Options change the shape of outcomes. Understand the payoff before sizing a trade.

Filed under: Options and derivatives
Reading time: 1 min read
Instrument: T-03
Assumptions: Stated in the notes

Contents 6 sections

In depth

A call generally gains when the underlying rises; a put generally gains when it falls. Each contract has a strike, expiration, and premium. Your maximum loss on a long option is often the premium paid, but strategies that combine contracts can create very different risk. This site focuses on education: diagrams and calculators help you learn mechanics. Trading involves risk of loss; examples here are not instructions to trade.

Key points

Know max loss and max gain before you trade.
Time decay matters as expiration approaches.
Complex spreads need careful review.

Worked figure

Fig. 1One long call at expiration, per share

Price at expiry	Profit / loss	Scale
$80	−$5
$90	−$5
$100	−$5
$105	$0
$110	+$5
$120	+$15

Assumed: strike $100, premium $5 a share, held to expiration, before fees. The loss stops at the premium; break-even is $105. Change strike and premium in the options calculator.

Run the numbers

T-03Options profit / loss calculatorChange the inputs and read the result. It runs in your browser.

Not investment advice

Articles and calculators on this site are for learning. They are not a recommendation to buy or sell any security, and they are not tailored to your personal situation.

Education vs personal advice. If you work with an adviser, that relationship has its own agreements and disclosures. Reading here does not replace that.
No outcome guarantees. Markets are uncertain. We write to explain ideas and trade-offs—not to promise returns or timing.