In this article
Options can look confusing — calls, puts, strikes, premiums, expiries. A payoff diagram cuts through it by answering one question: if the price ends at X on expiry day, how much do I make or lose?
This article is for education only and is not investment advice. Options are risky, and many retail traders lose money in F&O.
Reading a payoff diagram
- The horizontal axis is the price of the underlying (stock or index) at expiry.
- The vertical axis is your profit or loss.
- The zero line separates profit (above) from loss (below).
- Breakeven is where the payoff line crosses zero.
The examples below use an index at 22,000, a premium of ₹200 for at-the-money options, and a quantity of 50.
The four basic positions
1. Long call (buy a call)
You expect the price to rise.
- Max loss: the premium paid — 200 × 50 = ₹10,000, if the index ends at or below 22,000.
- Breakeven: strike + premium = 22,200.
- Max profit: unlimited as the price rises. At 22,500: (500 − 200) × 50 = ₹15,000.
The chart is flat (at −₹10,000) until the strike, then slopes upward.
2. Long put (buy a put)
You expect the price to fall. It’s the mirror image: max loss is the premium, breakeven is strike − premium (21,800), and profit grows as the price falls.
3. Short call (sell a call)
You expect the price to stay flat or fall.
- Max profit: the premium received, ₹10,000.
- Max loss: unlimited if the price rises sharply.
4. Short put (sell a put)
You expect the price to stay flat or rise. Max profit is the premium; losses grow as the price falls (large, though limited because prices can’t go below zero).
Notice the pattern: buyers have limited risk and need a move to profit; sellers collect premium and profit when not much happens — but carry large or unlimited risk.
Combining options: spreads
Bull call spread
Buy a 22,000 call for ₹200 and sell a 22,400 call for ₹80.
- Net cost: ₹120 × 50 = ₹6,000 — this is the max loss.
- Max profit: (400 − 120) × 50 = ₹14,000, if the index ends at or above 22,400.
- Breakeven: 22,000 + 120 = 22,120.
Selling the higher call makes the trade cheaper and lowers the breakeven, at the cost of capping profit. The payoff diagram is flat on both ends with a slope in the middle.
Long straddle
Buy a call and a put at the same strike. You profit from a big move in either direction — useful before major events — but lose both premiums if the price stays put.
Short straddle and iron condor
Selling options profits when the price stays in a range. The short straddle has unlimited risk; the iron condor adds bought options further out to cap the risk, creating a flat-topped profit zone with limited losses on both sides.
Summary table
| Strategy | View | Max profit | Max loss |
|---|---|---|---|
| Long call | Up | Unlimited | Premium |
| Long put | Down | Large | Premium |
| Short call | Not up | Premium | Unlimited |
| Short put | Not down | Premium | Large |
| Bull call spread | Moderately up | Limited | Limited (net debit) |
| Long straddle | Big move | Unlimited | Both premiums |
| Iron condor | Range-bound | Net credit | Limited |
Remember the costs
Payoff diagrams usually ignore brokerage, STT, exchange charges, GST and slippage. For options, these can noticeably reduce profits on small moves — include them when planning.
Build your own payoff chart
Our Option Payoff Calculator lets you build strategies with up to four legs or choose a preset (long call, spreads, straddles, strangles, iron condor). It draws the payoff chart at expiry and shows max profit, max loss, net premium and breakeven points.
Free toolTry the Option Payoff CalculatorSee the profit and loss of any options strategy at expiry.Frequently asked questions
Why is the payoff different before expiry?
Before expiry, an option's price also includes time value and depends on volatility. Payoff diagrams at expiry show only intrinsic value minus the premium paid or received.
What quantity should I use?
Use the total quantity: number of lots × lot size. Exchanges set lot sizes and revise them from time to time.
Are option sellers more successful than buyers?
Sellers win more often but can suffer large losses on big moves. Neither side is automatically better — risk management matters most.
For education only — not investment advice or a recommendation to buy or sell any security. Trading involves risk of loss. Verify charges and prices with your broker. Written by the Toolsopedia team. Spotted an error? Tell us and we’ll fix it.