Single-option payoffs¶

Four pictures. One idea each. No spreads yet — just what happens to P&L if you hold to expiration (fees ignored).

Not financial advice

Educational material only. Early assignment and fees change real outcomes.

Shared setup for the examples¶

Imagine stock XYZ is near $100. One contract = 100 shares. Premiums below are per share; multiply by 100 for dollars per contract.

1. Long call — you paid for upside¶

You buy the $100 call for $3.00 ($300 per contract).

\[ \text{Max loss} = \text{premium paid} = \$3 \]

\[ \text{Breakeven} = \text{strike} + \text{premium} = \$103 \]

\[ \text{Max profit} = \text{unlimited in theory as the stock rises} \]

Win example: stock finishes $110 → call worth $10 → profit ≈ $7/share ($700).
Loss example: stock finishes $95 → call expires worthless → lose the $300 premium.

2. Long put — you paid for downside¶

You buy the $100 put for $2.50 ($250).

\[ \text{Max loss} = \text{premium paid} \]

\[ \text{Breakeven} = \text{strike} - \text{premium} = \$97.50 \]

\[ \text{Max profit} \approx \text{strike} - \text{premium (if stock goes to zero)} \]

Win example: stock finishes $85 → put worth $15 → profit ≈ $12.50/share.
Loss example: stock finishes $105 → put worthless → lose $250.

3. Short call — you collected premium (naked)¶

You sell the $100 call for $3.00 and do not own the shares.

\[ \text{Max profit} = \text{premium received} = \$3 \]

\[ \text{Breakeven} = \$103 \]

\[ \text{Max loss} = \text{theoretically unlimited if the stock rises} \]

Win example: stock finishes $90 → call expires worthless → keep $300.
Loss example: stock finishes $130 → short call loses about $27/share before counting the $3 credit → about $2,400 per contract. The stock can go higher still. [verified] unlimited upside risk for uncovered calls.

4. Short put — you collected premium (naked / not cash-secured yet)¶

You sell the $100 put for $2.50.

\[ \text{Max profit} = \text{premium received} \]

\[ \text{Breakeven} = \$97.50 \]

\[ \text{Max loss} \approx \text{strike} - \text{premium (if stock → 0)} \]

Win example: stock finishes $110 → put worthless → keep $250.
Loss example: stock finishes $70 → loss ≈ $27.50/share ($2,750) after the credit.

What these four teach¶

Buyers have limited loss (the premium) and need a move.
Naked sellers have limited gain (the premium) and can face much larger losses.
That is not a bug in the formula — it is the deal you accept when you sell insurance without a hedge.

The next big topic is not “pick a credit spread.” It is: what categories of risk management exist, and how their win/loss profiles compare on the same stock story.

Continue to Greeks, then Ways to manage risk.

Sources¶

OCC Characteristics and Risks of Standardized Options
Sources index

Not financial advice. Verify broker rules yourself.