If you're seeing this message, it means we're having trouble loading external resources on our website. To log in and use all the features of Khan Academy, please enable JavaScript in your browser. Math by grade K—2nd 3rd 4th 5th 6th 7th 8th.

Option style - Wikipedia

Computing Computer programming Computer science Hour of Code Computer animation. Test prep SAT MCAT GMAT IIT JEE NCLEX-RN CAHSEE. Finance and capital markets Options, swaps, futures, MBSs, CDOs, and other derivatives. Call option as leverage.

Put writer payoff diagrams.

Call writer payoff diagram. Put-call parity arbitrage I. Put-call parity arbitrage II. Option expiration and price. Forward and futures contracts.

Call payoff diagram (video) | Khan Academy

Google Classroom Facebook Twitter Email. Payoff diagrams are a way of depicting what an option or set of options or options combined with other securities are worth at option expiration. What you do is you plot it based on the value of the underlying stock price. And I have two different plots here, one that you might see more in an academic setting or a textbook, and payoff american call option that you might see more if you look up payoff diagrams on the internet, or people actually trading options.

But they're very similar. This one just worries about the actual value of the options at expiration.

Call option - Wikipedia

This worries about the profit and loss. So this will incorporate what you paid for the option, secrets of binary options 60 second strategy indicator will not.

Error (Forbidden)

This just says what it is worth. If it payoff american call option a European option, it would be on expiration. So what is the value of this option at expiration?

So this is value at expiration. So the option would be worthless. It would be worthless. They would just let it expire. No reason to actually exercise the option. And so you have a payoff diagram that looks something like this. It kind of hockey sticks.

Now, if you do it in the profit and loss model, all you have to do is incorporate what you actually paid for the option. You have lost the price of the option because you wouldn't exercise it. So there you are break even.

So these are both legitimate payoff diagrams for a call option, for this call option right over here. They're just different ways of viewing it. This is the value of the option. This incorporates the actual cost of it.