Write the expiration equation
At expiration, a long call's intrinsic value is the greater of zero or underlying price minus strike. Subtract the premium and transaction costs to estimate net payoff. The buyer can lose the entire premium.
Breakeven at expiration is commonly strike plus premium per share, adjusted for costs. It is not the price required to sell the option earlier for a profit because time value and volatility also affect the market price.
- Underlying price
- Strike
- Premium and multiplier
- Expiration
- Transaction costs
Label the assumptions
Standard equity options commonly represent 100 shares, but adjusted contracts can differ. Liquidity, bid-ask spread, exercise style, corporate actions, and account rules affect execution.
A payoff diagram describes a contract under stated conditions. It does not estimate the probability of reaching each price.
Recalculate payoff below strike, at strike, at breakeven, and above breakeven using the actual contract multiplier.