Call and Put Option Payoffs at Expiration
Summary
This introductory explanation defines the expiration value of long call and put options in terms of the underlying price and strike. A call is worth zero when the underlying finishes at or below the strike, and its value rises by the amount the price exceeds the strike. A put is worth zero when the underlying finishes at or above the strike, and its value rises by the amount the strike exceeds the price. The article illustrates each payoff shape with an example using a strike of 100.
It then explains the asymmetry for option buyers: the payoff can retain upside exposure while limiting losses on the option position. That payoff is not free, because an option seller takes the other side and faces the corresponding risk, so buyers pay a premium. The discussion concerns intrinsic value at expiration and does not calculate the premium, account for transaction costs, or describe how option value changes before expiration. It is a payoff primer, not a complete guide to option pricing or trading P&L.
Key ideas
- A call’s expiration value is the greater of zero and the underlying price minus the strike.
- A put’s expiration value is the greater of zero and the strike minus the underlying price.
- At the strike price, both call and put expiration values are zero.
- Long options have asymmetric expiration payoffs, but the buyer pays a premium to obtain them.
- Expiration payoff diagrams do not describe an option’s full value before expiration.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.