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Calls and puts, what do you actually gain?

Build option payoffs, combine positions into strategies, and use matching cash flows to price options and find parity arbitrage. Solve has 10 questions worked step by step.

Rights and obligations · Step 1 of 12

The buyer has a right; the writer has an obligation

Value per share ($)
02550751000204060
Expiry share price, ST ($)
Total payoff
Quillfern Works is our fictional share throughout this lesson. A call gives its buyer the right to buy at exercise price X; a put gives the right to sell at X. The buyer pays a premium, and the writer receives it in exchange for taking the other side when the option is exercised.
Try it: Choose a call or put, then move the price through the exercise price.
Right held by the buyer
When may the buyer exercise?
Share price at expiry$50.00
Exercise price$50.00
Intrinsic value
$0.00
Money status
At the money
Exercise time
Only expiry
Intrinsic value = max(S − X, 0).
max((50 − 50), 0) = $0.00. At the money.
European: exercise only at expiry. At the money means S = X.
Option premiums and payoffs are per share; the budget comparison also reports total portfolio wealth. Hold strategy legs to expiry and assume no dividends, taxes or trading costs unless stated otherwise. Profit diagrams ignore interest on premiums and starting share costs; T-bills grow only where a rate is explicitly given.
Check yourself
Who may choose whether to exercise an option?

Exam coming up and the payoff diagrams all look the same?

Bring your problem sets. We work through them together until every type feels routine.

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