How to read an option payoff diagram

A payoff diagram answers one question: if the index ends at this price on expiry day, how much do I make or lose?

The two axes

• Across: the index price at expiry.
• Up and down: your profit or loss. Above the zero line is profit and below it is loss.

Where the line crosses zero is your breakeven. The bends in the line are always at your strikes, because that is where an option starts to have intrinsic value.

Example 1: a bull call spread

BANK NIFTY, 23 November 2026 expiry, lot size 30, with the index near 54,626:

• Buy the 54,500 CE at 993.00
• Sell the 55,000 CE at 720.00

You pay 993 − 720 = 273 points. The spread can never be worth more than the 500-point gap between strikes.

The diagram is flat on the left, slopes up between the strikes and is flat again on the right. Both profit and loss are capped.

Example 2: a short straddle

Same expiry, selling both options at one strike:

• Sell the 54,700 CE at 875.95
• Sell the 54,700 PE at 770.10

You collect 1,646.05 points, which is ₹49,382 for one lot of each. That is the peak of the diagram, reached only if the index expires exactly at 54,700.

• Breakevens: 54,700 − 1,646.05 = 53,053.95 and 54,700 + 1,646.05 = 56,346.05.
• Maximum loss: unlimited on the upside, and very large on the downside. Each point beyond a breakeven costs ₹30.

The diagram is a tent: limited profit around the strike and steep losses on both sides, which is why sellers need to know their exit in advance.

The limit of a payoff diagram

The line shows value at expiry only. Before expiry, options still have time value, so your live P&L will not sit on the line. It moves towards the line as expiry approaches.

The simulator draws this diagram under your positions as you trade. Hover or tap it to read the P&L at any index price.