Calls vs puts: payoffs and breakevens · Options 101

In this lesson

Compute the payoff at expiration, P&L, breakeven, and max loss/gain for long and short calls and puts.

5
short parts: 12
questions: ~15
minutes

Read the whole lesson on one page

Calls vs puts: the lesson

What an option is worth on the last day

On expiration day there's no time left. An option is worth only what exercising it would give you right now.

Step 1: A 50 call with the stock at 52: you can buy at 50 something worth 52, so the call is worth 2.00.
Step 2: A 50 call with the stock at 48: nobody buys at 50 what sells for 48, so the call is worth 0.
Step 3: A 50 put with the stock at 45: you can sell at 50 something worth 45, so the put is worth 5.00.

The long call

You buy the 50 call for 2.00, which is $200. Below 50 it's worth nothing, and you lose the whole $200. Between 50 and 52 it's worth something, but not enough to pay you back. Above 52 you profit.

Drag to move the stock price at expiration

Stock at $57.00: profit of $500

Breakeven: 52.00
Max loss: $200
Max gain: No limit

Long 50 call bought at 2.00, at expiration. Flat at a $200 loss below the strike, then up $100 for every $1 the stock gains.

Step 1: Breakeven = strike + premium.
Step 2: 50 + 2.00 = 52.
Step 3: Every dollar above 52 adds $100 of profit per contract.

The long put

You buy the 50 put for 1.80, which is $180. It gains value as the stock falls below 50, and it breaks even at 50 − 1.80 = 48.20.

Drag to move the stock price at expiration

Stock at $53.00: loss of $180

Breakeven: 48.20
Max loss: $180
Max gain: $4,820

Long 50 put bought at 1.80, at expiration. Flat at a $180 loss above the strike, then up $100 for every $1 the stock falls.

The most you can make is if the stock goes to zero: (50 − 1.80) × 100 = $4,820.

Sellers take the other side

A seller's chart is the buyer's chart flipped upside down. The seller of the 50 put for 1.80 keeps up to $180 if the stock stays above 50.

Breakeven: 48.20
Max loss: $4,820
Max gain: $180

Short 50 put sold at 1.80, at expiration. The seller keeps $180 above the strike and loses $100 for every $1 the stock falls below 48.20.

The seller of the 50 call for 2.00 keeps up to $200 if the stock stays below 50. Above 52 the loss keeps growing as the stock climbs.

Breakeven: 52.00
Max loss: No limit
Max gain: $200

Short 50 call sold at 2.00, at expiration, with no shares owned. The line keeps falling to the right because a stock has no ceiling.

Calls and puts side by side

Long 50 call (paid 2.00)	Long 50 put (paid 1.80)
Profits when the stock rises	Profits when the stock falls
Breakeven: 52.00	Breakeven: 48.20
Max loss: $200	Max loss: $180
Max gain: no limit	Max gain: $4,820

Worked example: Four positions on a $50 stock

Illustrative numbers, not real quotes.

Take a $50 stock with the 50 call at 2.00 and the 50 put at 1.80. Walk through the long call first:

Premium 2.00 × 100 = $200 paid. That is the most you can lose.
Breakeven: strike 50 + premium 2.00 = 52.
At 52 the call is worth 2.00, which is what you paid. Above 52 you profit, dollar for dollar.

Now the same steps for all four positions. Each cell is the P&L per contract at expiration:

Stock at expiration	Long 50 call (2.00)	Long 50 put (1.80)	Short 50 put (1.80)	Short 50 call (2.00)
40	−$200	+$820	−$820	+$200
45	−$200	+$320	−$320	+$200
48.20	−$200	$0	$0	+$200
50	−$200	−$180	+$180	+$200
52	$0	−$180	+$180	$0
55	+$300	−$180	+$180	−$300
60	+$800	−$180	+$180	−$800

And the limits for each position:

Position	Premium	Breakeven	Max loss	Max gain
Long 50 call	2.00	52.00	$200	Unlimited
Long 50 put	1.80	48.20	$180	$4,820
Short 50 put	1.80	48.20	$4,820	$180
Short 50 call (uncovered)	2.00	52.00	Unlimited	$200

Every short position is the mirror image of the long one on the same strike.
The put's max gain comes from the stock going to zero: (50 − 1.80) × 100 = $4,820.

Education only, not investment advice. Options involve risk. Read the OCC's Characteristics and Risks of Standardized Options. Example numbers are illustrative.