How an option payoff is calculated
At expiry, each option is worth only its intrinsic value:
Call value = max(0, Spot − Strike)
Put value = max(0, Strike − Spot)
Leg P&L = (Value − Premium) × Quantity (bought)
Leg P&L = (Premium − Value) × Quantity (sold)The strategy's payoff is the sum of all legs at every possible expiry price.
Common strategies
- Bull call spread – buy a call, sell a higher-strike call. Cheaper than a plain call, with capped profit and capped loss.
- Bear put spread – buy a put, sell a lower-strike put. The bearish mirror of the bull call spread.
- Long straddle – buy a call and a put at the same strike. Profits from a large move in either direction, such as around results.
- Short strangle – sell an out-of-the-money call and put. Profits if the market stays in a range, with unlimited risk on both sides.
- Iron condor – a short strangle with protective wings bought further out. Range-bound with defined risk.
Worked example: bull call spread
With Nifty at 25,000, buy the 25,000 call at ₹180 and sell the 25,200 call at ₹90, one lot of 65. You pay a net ₹90 × 65 = ₹5,850, which is your maximum loss. Maximum profit is (200 − 90) × 65 = ₹7,150 if Nifty expires above 25,200. The breakeven is 25,000 + 90 = 25,090.
Frequently asked questions
Is the payoff shown at expiry or today?
At expiry. Before expiry, options still carry time value, so the live P&L curve is smoother than this chart. Use the Black-Scholes calculator to estimate value before expiry.
What does “unlimited” profit or loss mean?
If the strategy is net long or short calls with no cap, profit or loss keeps growing as the underlying rises. A naked short call has unlimited risk; a long call has unlimited profit.
Does this include brokerage and STT?
No, the payoff is before charges. Use the brokerage calculator to see what a multi-leg strategy costs, since each leg is a separate order.
How do I enter the premium?
Enter the price per unit you paid (buy) or received (sell) for each leg, as shown in your option chain. Quantity is lots × lot size.
Results are estimates for educational purposes only and are not investment, tax or financial advice. Verify figures with your broker or advisor before acting on them.