This page focuses on the most basic options idea: what happens at expiration. It shows what a call and a put are, why people use them, how payoff differs from profit, and how the graph changes when stock price, strike price, and premium change.
Use it as a clean starting point before moving to option pricing models such as binomial or Black-Scholes.
A call option gives the buyer the right, but not the obligation, to buy the stock at the strike price by expiration. A put option gives the buyer the right, but not the obligation, to sell the stock at the strike price by expiration.
Payoff is the position’s value at expiration before considering the premium. Profit includes the premium paid or collected. For short options, the payoff line is negative when the option finishes in the money.
Here, X means strike price and ST means stock price at expiration. The graph uses the expiration stock price, not today’s stock price.
Blue line = position payoff at expiration. Green line = position profit at expiration. The vertical dashed line marks the strike price.
| Stock price at expiration | Payoff / share | Profit / share | Profit / contract |
|---|
Suppose Apple is trading near $248. You buy a call with strike price $250. If Apple finishes well above $250 by expiration, the call gains value. If Apple stays below the strike, the call may expire worthless and the buyer can lose the premium paid.
Suppose you already own Apple shares and want protection for a few months. Buying a put creates a floor-like effect because the put becomes more valuable if the stock falls. The trade-off is that the premium reduces overall return if the stock does not drop.
Selling options brings in premium now, but it creates an obligation later. A short call can have very large loss if the stock rises sharply. A short put can lead to loss if the stock drops and the seller must buy the stock at the strike price.
Use this short quiz to check your understanding of basic option payoff ideas before moving on.
These links are useful when you want real market quotes, contract details, or plain-English options background.
The site links above are for public information. Actual market quotes move continuously.