Option traders use profit and loss diagrams to evaluate how a strategy may perform over a range of prices, thereby gaining an understanding of potential outcomes.
This part of the program can reveal ways of making option plays that could turn out very beneficial, while minimizing risk. This newsletter gives you information for maximizing your profits in options trading, including option strategies and market indicators. It provides information to implement each strategy and shows the investor philosophy when that type of play is generally used. In this example, shown in Figure 10, a call option has a strike price of $50 and a $200 cost (for the contract).
If the option expires worthless (for example, the stock price was $50 at expiration), the loss would be $200, as shown by the graph line interested the y-axis at a value of negative 200.
Figure 11, taken from the Options Industry Council's Web site, shows various options strategies and the corresponding profit and loss diagrams.
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