Stocks, Options & Trading Hub

Q: What is an option in stock trading?

An option is a contract that gives you the right, but not the obligation, to buy or sell an underlying asset (such as a stock or ETF) at a fixed price (the strike) on or before a specific date (the expiration). A call option is a right to buy, a put option is a right to sell.

Q: How do I read an options payoff diagram?

An options payoff diagram plots profit or loss on the vertical axis against the underlying price on the horizontal axis at expiration. Where the line crosses zero is your breakeven price. Flat sections indicate capped profit or limited loss, while sloped sections show where your position gains or loses as the underlying moves.

Q: What is the maximum loss on a long call or long put?

For a long call or long put, your maximum possible loss is the premium you paid for the option. If the option expires worthless, you lose 100% of that premium but nothing more.

Q: How can I estimate breakeven for basic options strategies?

For a long call, breakeven is strike price plus premium paid. For a long put, it is strike price minus premium. For covered calls, breakeven is stock purchase price minus call premium received. Our interactive payoff calculator computes breakeven automatically for each strategy you select.

Q: Are options suitable for beginners?

Some basic strategies, like covered calls or protective puts, can be appropriate for beginners who already understand stock investing and risk. More complex strategies with leverage or unlimited loss potential are generally not suitable for beginners. Always understand the payoff, maximum loss, and worst‑case scenarios before trading.

Explore core concepts of stocks, options, and trading strategies with interactive payoff tools and curated calculators. Visualize risk/reward, breakeven, and maximum loss before you place a trade.

Calls & Puts Payoff Diagrams Risk Management

Interactive Options Payoff Calculator

Model basic stock and options strategies at expiration. Adjust the inputs to see how profit and loss change across different underlying prices.

1. Choose Strategy & Inputs

Strategy

Current stock price

Strike price

Option premium (per share)

Contracts

Min price at expiry

Max price at expiry

2. Results at Expiration

Breakeven price –

Max profit –

Max loss –

Payoff at current price –

Sample payoff table

Price at expiry	Profit / Loss

Values are per total position (including contract size of 100 shares per option).

Use these specialized tools to go deeper into pricing, risk, and performance of your trading strategies.

Black‑Scholes Option Pricing

Estimate fair value of European calls and puts using volatility, time to expiry, and interest rates.

Great for: theoretical pricing & comparing to market premiums.

Options Greeks (Delta, Gamma, Theta, Vega)

Quantify how sensitive your option is to price moves, time decay, and volatility changes.

Great for: risk management and hedging decisions.

Implied Volatility

Back out the market’s implied volatility from an option’s current price.

Great for: spotting rich/cheap options and volatility trades.

Value at Risk (VaR)

Estimate potential portfolio loss over a given horizon at a chosen confidence level.

Great for: portfolio‑level risk limits and stress testing.

Position Size

Calculate how many shares or contracts to trade based on account size and risk per trade.

Great for: consistent risk management across trades.

Kelly Criterion

Estimate optimal fraction of capital to risk per trade given edge and win probability.

Great for: advanced bankroll and sizing decisions.

Stocks, Options and Trading: Core Concepts

Stocks, options and other derivatives let you express views on markets, hedge risk, or generate income. Before trading, you should understand how each instrument behaves, especially in worst‑case scenarios.

Stocks vs. Options: What’s the Difference?

Stock: a share of ownership in a company. Profit/loss moves 1‑for‑1 with the stock price.
Option: a contract on an underlying asset (stock, ETF, index, etc.) with:
- Strike price (K) – the agreed buy/sell price.
- Expiration date (T) – last day the option can be exercised.
- Premium – price you pay (long) or receive (short) for the contract.

Basic payoff formulas at expiration (per share)

Long stock: Payoff = S_T − S₀
Short stock: Payoff = S₀ − S_T
Long call: Payoff = max(0, S_T − K) − Premium
Short call: Payoff = Premium − max(0, S_T − K)
Long put: Payoff = max(0, K − S_T) − Premium
Short put: Payoff = Premium − max(0, K − S_T)

Calls vs. Puts

Call option – right to buy the underlying at the strike price.
Put option – right to sell the underlying at the strike price.

Think in terms of what you want to happen:

Expect price to rise → consider long calls or short puts.
Expect price to fall → consider long puts or short calls.

Breakeven, Max Profit and Max Loss

For basic single‑leg options, you can compute these quickly:

Long call: breakeven = K + Premium, max loss = Premium, max profit = theoretically unlimited.
Long put: breakeven = K − Premium, max loss = Premium, max profit ≈ K − Premium (if the stock goes to 0).
Short call: breakeven = K + Premium, max profit = Premium, max loss = theoretically unlimited.
Short put: breakeven = K − Premium, max profit = Premium, max loss ≈ K − Premium (if the stock goes to 0).

The interactive payoff calculator above computes these values for you and shows how profit/loss changes across a range of possible expiry prices.

Popular Stock & Options Strategies

Covered call – long stock + short call.
Used to generate income; upside is capped, downside is only partially protected.
Protective put – long stock + long put.
Acts like insurance: you pay a premium to limit downside risk.
Vertical spreads – buy one option and sell another at a different strike.
Limit both max profit and max loss; useful for defined‑risk trades.

Risk Management for Traders

Professional traders focus less on “being right” and more on:

Position sizing – risk only a small, consistent fraction of capital per trade.
Diversification – avoid concentration in a single stock, sector, or strategy.
Scenario analysis – ask “what if volatility spikes?” or “what if the stock gaps 20%?”
Exit rules – define profit targets and stop levels before entering a trade.

How to Use This Page Effectively

Use the payoff calculator to understand how a strategy behaves at expiration.
Open the Black‑Scholes and Greeks calculators to see how time and volatility affect value.
Use Position Size and Kelly Criterion to keep risk per trade under control.
Track your trades and compare realized results to the modeled payoffs.

Trading stocks and options involves risk, including the potential loss of your entire investment. The tools and explanations on this page are for educational purposes only and do not constitute financial advice or a recommendation to buy or sell any security.

Stocks, Options & Trading FAQ

What is an option in stock trading?

An option is a standardized contract that gives you the right, but not the obligation, to buy or sell an underlying asset at a fixed price (the strike) on or before a specific expiration date. A call gives you the right to buy; a put gives you the right to sell.

How do I read an options payoff diagram?

The horizontal axis shows the underlying price at expiration, and the vertical axis shows profit or loss. Where the line crosses zero is your breakeven. Flat sections indicate capped profit or loss; sloped sections show where your position gains or loses as the underlying moves. Our payoff calculator approximates this with a table of prices and P&L.

What is the maximum loss on a long call or long put?

For long calls and long puts, the maximum loss is limited to the premium you paid. If the option expires out of the money, it becomes worthless and you lose 100% of that premium, but you cannot lose more than that.

How can I estimate breakeven for basic options strategies?

For a long call, breakeven is the strike price plus the premium paid. For a long put, it is the strike price minus the premium. For covered calls and protective puts, you adjust the stock entry price by the option premium received or paid. The calculator on this page computes breakeven automatically.

Are options suitable for beginners?

Some conservative strategies, such as covered calls or protective puts, can be appropriate for investors who already understand stock investing and risk. Complex, leveraged, or naked short option strategies can involve large or unlimited losses and are generally not suitable for beginners. Always understand the payoff profile and worst‑case scenarios before trading.