WHAT ARE PAY-OFF DIAGRAMS?
Payoff diagrams are used to determine how an option will pay out prior to expiry and at the expiry day. By looking at a payoff diagram, we can quickly and easily determine the maximum risk, maximum profit, and what profit will be available at any share price in the future.
Often payoff diagrams are an estimation as they cannot calculate all variables. Some basic payoff diagrams are below.
Long Call
Long Put
Short Call
Short Put
How Payoff Diagrams Work
In this Minc Webinar Stuart McClure explains how to use an Option Payoff diagram to analyse trades. Pay-off diagrams provide a visual method to quickly assess your risk and reward levels.
Payoff Diagrams are an integral part of options trading and should be the basis of any trade analysis. Without the ability to create and manipulate option payoff diagrams, you are trading blind.
This webinar is useful as all future strategies will base the analysis on the layout of the strategies payoff diagram.