Calls/Puts Options Profit & Loss Diagram Simply Explained.  Essentials of Investments. CPA Exam BAR
Channel: Farhat Lectures. The # 1 CPA & Accounting Courses
Date: 2020-08-24

IN this video I discuss options profit & loss diagram. For options, profit-loss diagrams are simple tools to help you understand and analyze option strategies before investing. 

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A Payoff diagram is a graphical representation of the potential outcomes of a strategy. Results may be depicted at any point in time, although the graph usually depicts the results at expiration of the options involved in the strategy.

Options are financial instruments that are derivatives based on the value of underlying securities such as stocks. ... Call options allow the holder to buy the asset at a stated price within a specific timeframe. Put options allow the holder to sell the asset at a stated price within a specific timeframe.
Call payoff per share = (MAX (stock price - strike price, 0) - premium per share)
Put payoff per share = (MAX (strike price - stock price, 0) - premium per share)