A1
Derivative Payoffs
Payoff and profit at expiry for one position: a forward, a call, a put or the underlying itself, long or short.
Learning focus: a forward's profit moves one-for-one with the price both ways, while an option's buyer pays a premium to keep the upside and cap the downside, and every dollar the long gains the short loses.
Position
Profit at expiry
10.00
Payoff at expiry
15.00
Break-even price
105.00
Maximum profit
Unlimited
Maximum loss
5.00
Premium paid
5.00
Payoff and profit at expiry
The profit line is the payoff line shifted by the premium. It bends at the strike: one side is flat, so the option's outcomes are lopsided.
Long against short
| Price at expiry | Long profit | Short profit | Sum |
|---|---|---|---|
| 80.00 | −5.00 | 5.00 | 0.00 |
| 90.00 | −5.00 | 5.00 | 0.00 |
| 100.00 | −5.00 | 5.00 | 0.00 |
| 110.00 | 5.00 | −5.00 | 0.00 |
| 115.00 | 10.00 | −10.00 | 0.00 |
| 120.00 | 15.00 | −15.00 | 0.00 |
A derivative is a zero-sum game: at every price the short's profit is the long's loss, so the two always add to zero (before costs).