Traders who trade large number of contracts in each trade should check out OptionsHouse. Risk Warning: Stocks, futures and binary options trading discussed on this website can be considered High-Risk Trading Operations and their execution can be very risky and may result in significant losses or even in a total loss of all funds on your account. Please enter a password. Most options trading platforms putt analysis software let you create profit and loss diagrams for specific options. Sign up for a free 30min tutor trial with Chegg Tutors.

It's lohg helpful to be able to chart the payoffs an option can return. This page discusses the four maria trading forex girl fights option charts and how to set them up. The first pht we'll make shows what happens when you Long a Call buy a call optipn. When you buy a call option, you must pay a premium the price of the option.

You can make a profit if the value of the underlying asset sufficiently increases. The x-axis represents the price of the underlying pption or "S" like the stock. To draw the lines we will be placing on the chart, it is best to set up the following helpful table. At Maturity of Option. Call 0 0 S-X. Premium -c -c -c. Total -c -c S-X-c. On the second row of the grah the three scenarios of the asset's value are given: the asset's value can be less than the strike price, equal to the strike price, or greater than the strice price.

The next row shows the value of the call option for each scenario. If the asset's value is less than or equal to the strike price, then the call option is worthless; however, if the asset's value is greater than the strike price, then the call option can be used to make a profit of S-X. The next line shows the cost of the premium at each scenario--since we are long on the option, the premium is some negative number whatever was payed to purchase the option.

The last row is simply a total of the two rows above it. To make the chart, we first must plot the strike price on the x-axis. This is represented grxph an "X". The blue line otion the payoff of the call option. If S is less than X, the payoff of the option is 0, so it will follow the x-axis. After reaching the strike price, the payoff of the option is S-X, so the puf will increase at a 45 degree angle if the numbers grwph spaced the same on both axes.

The green line represents the profit from *long put option graph 4x5y 20* the call option. It runs parallel to the payoff line but since it takes into account the price that was payed for the premium the cost of the call option it will be that far below the payoff line. Perhaps an example optiin be helpful:. Let's say you are purchasing a call option for ABC stock. So plugging in some values for ABC stock at maturity, let's see what you would have earned:.

The graph would look like this:. Now that we've got the first chart out of the way, we can move a bit quicker and show a few other charts. Now we'll see what happens when you Short a Call sell a call option. Since you are writing the option, you get to collect the premium. You'll only end up losing money long put option graph 4x5y 20 the value of the underlying asset increases too much since you'll be forced to sell the asset at lony strike price lower than market value.

Here's our nifty table:. Call 0 0 - S-X. The chart doesn't really need a payoff curve since gaph not the one holding the call option. The profit will hold steady at the premium until it reaches the strike price, at which point every dollar the asset gains is a dollar you will lose. Buying a put option gives pur the right to sell the underlying asset at the strike price.

When you long a put buy a putyou will profit only if the price of the underlying asset decreases. Let's start by setting up the table; this time we'll use "p" as the price of the premium:. Put X-S 0 0. Premium -p -p -p. Total X-S-p -p -p. This makes sense--the option will only give a payoff if the asset is below the strike price. Opption payoff less the premium will be your profit. The chart looks just like the "Long a Call" chart except it's flipped vertically at the strike price.

Our last simple but helpful option chart shows what happens when you short a put sell a put. Since you are the writer of the put in this case, you are happiest when the asset's value doesn't fall below the strike price. Again, since you don't hold the option we've only included a "Profit" line and not a "Payoff" line. Now that you have seen the four basic types optjon options charts, we can do some stuff that's a lot more fancy and understand option-trading strategies that are a bit more tricky.

Other sites in the eonor. How to Chart Options. This page discusses the four basic option charts and ,ong to set them up. You can make a profit if the value of the underlying asset sufficiently increases. Oltion runs parallel to the payoff line but since it takes into account the price that was payed for the premium the cost of the call option it will be that far below the payoff line.

Now that we've got the first chart out of the way, we can optin a bit quicker and show a few other charts. You'll only end up losing money if the value of the underlying asset increases too much since you'll be forced to sell the asset at a strike price lower than market value. The profit will hold steady at the premium until it reaches the strike price, at which point garph dollar the asset gains is a dollar you will lose.

When you long a put buy a putyou will profit only if the price of the underlying asset decreases. The payoff less the puf will be lonh profit. The chart looks just like the "Long a Call" chart except it's flipped vertically at the strike price. Again, since you don't hold the option we've only included a "Profit" line and not a "Payoff" line.

Now that you have seen the four basic types of options charts, we can do some stuff that's a lot more fancy and understand option-trading strategies that are a bit more tricky. Start Trading Options Basic Option Charts Covered Calls.

## Short Put Option Strategy

In a long put trade, a put option which are "held long " in the portfolio. A long put option the investor purchases one put option with a strike price of $ 20. Free math problem solver answers your algebra, geometry, Password must be 5 characters long ; This option is required to subscribe. Upgrade Now. What is Long Put? See detailed (typically around $10 to $ 20) and varies across option If you are very bullish on a particular stock for the long term and is.