Option Payoff

The amount a trader receives at expriration from exercising the option.

It equals the option’s intrinsic value, and depends on the relationship between the option’s strike price and underlying price at expiration.

Call option payoff = MAX(underlying price minus strike, 0).

Put option payoff = MAX(strike minus underlying price, 0).

Sometimes payoff is interpreted net of initial purchasing price of the option (net profit or loss), sometimes gross.

The effect of underlying price on option payoff is often displayed on a chart known as payoff diagram.

See Option Payoff Excel Tutorial and Option Strategy Payoff Calculator.

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