Parity & Profit

Profit vs. Payoff

Profit is the payout shifted by premium paid.

highlighted = computed this step

Subtracting premium

Profit is payoff minus premium. With premium $5.00, the same payoff shape shifts downward by $5.00.

profit(S)=payoff(S)−premium\text{profit}(S)=\text{payoff}(S)-\text{premium}
Long call profit, prem $5Payoff at expiry.Long call profit, prem $5K=$100$105$80$100$120$-7.00$+0.00$+17.00Underlying price at expiryProfit

Breakeven and floor

Profit bottoms out at $-5.00 — the most you can lose is the $5.00 premium. Breakeven is at $100.00 + $5.00 = $105.00; at expiry that point is $0.00. At $120.00 profit is $15.00.

profitmin⁡=$−5.00,extbreakeven:$100.00+$5.00=$105.00\text{profit}_{\min}=\$-5.00,\quad ext{breakeven}: \$100.00 + \$5.00 = \$105.00
Long call profit, prem $5Payoff at expiry.Long call profit, prem $5K=$100$105$80$100$120$-7.00$+0.00$+17.00Underlying price at expiryProfit