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Options Basics · Lesson 2

Strike, expiry and premium

Drawing an option's payoff

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Strike, expiry and premium

In this lesson

Calculate break-even and profit or loss at expiry for a call and a put, and read a payoff diagram.

Key takeaways

  • At expiry, a call is worth max(0, price − strike); a put is worth max(0, strike − price).
  • Call break-even = strike + premium; put break-even = strike − premium.
  • An option buyer's maximum loss is the premium.
  • Time decay: options lose value as expiry approaches, all else equal.
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Next lesson: Put/call ratio and open interest

Educational information only - not financial advice.

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