Call option payoff calculation
No financial, investment or trading advice is given at any time. Home Calculators Tutorials About Contact. Tutorial 1 Tutorial 2 Tutorial 3 Tutorial 4. We will look at: Call Option Payoff Diagram Buying a call option is the simplest of option trades. The key variables are: Strike price 45 in the example above Initial price at which you have bought the option 2.
Call Option Scenarios and Profit or Loss Three things can generally happen when you are long a call option. Underlying price is higher than strike price Finally, this is the scenario which a call option holder is hoping for.
Call Option Payoff Formula The total profit or loss from a long call trade is always a sum of two things: Initial cash flow Cash flow at expiration Initial cash flow Initial cash flow is constant — the same under all scenarios. It is a product of three things: Cash flow at expiration The second component of a call option payoff, cash flow at expiration, varies depending on underlying price.
Call Option Break-Even Point Calculation One other thing you may want to calculate is the exact underlying price where your long call position starts to be profitable. It is very simple. Therefore the formula for long put option payoff is:. It is very easy to calculate the payoff in Excel.
The key part is the MAX function; the rest is basic arithmetics. You can see all the formulas in the screenshot below. Besides the strike price, another important point on the payoff diagram is the break-even point, which is the underlying price where the position turns from losing to profitable or vice-versa. Calculating the exact break-even price is very useful when evaluating potential option trades. The formula for put option break-even point is actually very simple:.
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Tutorial 1 Tutorial 2 Tutorial 3 Tutorial 4. Put Option Payoff Diagram and Formula. This page explains put option payoff. We will look at: From Wikipedia, the free encyclopedia. This article is about financial options.
For call options in general, see Option law. This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. October Learn how and when to remove this template message. Upper Saddle River, New Jersey A Practical Guide for Managers.
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