Payoffs: four pictures that explain every option
अप्सन पेअफ डायग्राम: कल र पुट किन्दा वा बेच्दा नाफा-नोक्सान
Every option position, however complicated, is built from four basic shapes: buy a call, buy a put, sell a call, sell a put. Learn these four pictures and you can read any strategy.
हाल नेप्सेमा फ्युचर्स र अप्सन्स कारोबार गर्न पाइँदैन। नियामक निकायले भविष्यमा अनुमति दिएमा यो कोर्स तपाईंका लागि विस्तृत गाइड हुनेछ।
How to read a payoff diagram
A payoff diagram answers one question: if the share ends at this price on expiry day, how much have I made or lost? The bottom axis is NABIL's price at expiry; the line is your profit or loss for one lot (500 shares), after the premium. Green is profit, red is loss, the blue line is today's price, and the dot is your break-even.
There are only four basic shapes. Every strategy in lesson 9 is two or more of them added together.
1. Buy a call - "I think it will rise"
Limited loss, open-ended gain - that's why calls are popular. The catch is the shape on the left: most of the time NABIL won't finish above 569 in a month, and the flat red line is where most bought calls end.
2. Buy a put - "I think it will fall" (or "I want insurance")
3. Sell a call - "I think it won't rise much"
4. Sell a put - "I'd happily buy it cheaper"
Selling a put is the same as promising to buy NABIL at 540 and being paid Rs 7.4 a share to wait. Investors who genuinely want the shares at that price use it on purpose; people chasing "steady income" often find out what the red side means in their first bad month.
The pattern in one table
| Position | You want NABIL to… | Most you can make | Most you can lose | Break-even |
|---|---|---|---|---|
| Long 560 call | Rise above 569 | No limit | Rs 4,500 | Rs 569 |
| Long 540 put | Fall below 532.6 | Rs 2,66,300 (at zero) | Rs 3,700 | Rs 532.6 |
| Short 560 call | Stay below 560 | Rs 4,500 | No limit | Rs 569 |
| Short 540 put | Stay above 540 | Rs 3,700 | Rs 2,66,300 (at zero) | Rs 532.6 |
Buyers have small, known losses and big possible gains, but lose more often. Sellers win more often, but small amounts - and occasionally lose big. Neither is "better"; they're different bets on how far and how fast the price moves.
Before expiry the lines are curves
These pictures show the result on expiry day. Before then, an option is worth more than its expiry value because there's still time for the price to move - so the real-time profit line is a smooth curve above the bent line, closing onto it as expiry nears. That gap is time value, and it's the subject of the next lesson.
See it live on MacroLens NP
Everything in this lesson, worked out on real NEPSE data for every listed company - inside the MacroLens NP desk.
Lesson summary
- Long call: losses capped at the premium, gains grow as the price rises above strike + premium.
- Long put: losses capped at the premium, gains grow as the price falls below strike − premium.
- Short call: gain capped at the premium, losses unlimited if the price shoots up.
- Short put: gain capped at the premium, large losses if the price collapses - like buying the stock at the strike.
Create a free account to keep reading
Lesson 1 is open to everyone. From here on, the course is still completely free - we just ask for an account so we can save where you stopped, keep your quiz scores and let you pick up on any device.
No card, no payment. 11 more lessons, 118 minutes in all.
Education only, not investment advice: nothing here tells you to buy or sell any share. Investing carries risk - you can lose money. Examples use made-up companies unless a real one is named.