PayOffs In Commodity Options- Formula, Calculator & Example

Published on Friday, August 24, 2018 by Chittorgarh.com Team | Modified on Sunday, August 9, 2020

LONG (BUY) CALL PAYOFF FOR COMMODITY OPTIONS

Suppose you want to invest in Gold Option and your view is that its price will increase in next 2 to 3 months. You buy a Call Option at a strike price of Rs 30,000 by paying a premium of Rs 100.

The profit is unlimited in a Long Call Commodity Option while the risk is limited to the premium paid i.e. Rs 100.

Scenarios-

When the strike price of the Call option at expiry is less than Rs 30,000. You will allow the option to expire worthless and lose the premium of Rs 100 paid.

When the strike price of the Call option at expiry is above Rs 30,000. Your trade will break even at Rs Rs 30,000 + Rs 100= Rs 30,100. Anything above the break-even is your profit.

Payoff for different strike prices on expiry

Strike Price on Expiry	Pay Off= Strike Price- Break Even= (Max loss cannot be more than Rs 100)
29,600	-100
29,700	-100
29,800	-100
29,900	-100
30,000	-100
30,100	0
30,200	100
30,300	200
30,400	300

PAYOFF CHART LONG (BUY) CALL COMMODITY POSITION

SHORT (SELL) CALL PAYOFF FOR COMMODITY OPTIONS

Suppose you want to invest in Gold Option and your view is that its price will decrease in the coming days. You sell a Call Option at a strike price of Rs 30,000. You receive a premium of Rs 100 for selling the option.

The profit is limited to the premium received in a Short Call Commodity Option while the risk is unlimited.

When the strike price of Call option at expiry is less than Rs 30,000. You will allow the option to expire worthless and retain the premium of Rs 100 paid.

When the strike price of Call option at expiry is above Rs 30,000. Your contract will be exercised by the buyer. The trade's break-even at Rs Rs 30,000 + Rs 100= Rs 30,100. Anything above the break-even is your loss and depends on the extent in the rise of the price.

Payoff for different strike prices on expiry

Strike Price on Expiry	Pay Off= Break Even-Strike Price= (Max profit cannot be more than Rs 100)
29,600	100
29,700	100
29,800	100
29,900	100
30,000	100
30,100	0
30,200	-100
30,300	-200
30,400	-300

PAYOFF CHART SHORT (SELL) CALL COMMODITY POSITION

LONG (BUY) PUT PAYOFF FOR COMMODITY OPTIONS

Suppose you want to invest in Gold Option and your view is that its price will decrease in the coming days. You buy a Put Option at a strike price of Rs 30,000. You pay a premium of Rs 100 for buying the contract.

The profit is unlimited in a Long Put Commodity Option while the risk is limited to premium paid.

When the price of Call option at expiry is above Rs 30,000. You will allow the option to expire worthless and you will lose the premium of Rs 100 paid.

When the strike price of Call option is below Rs 30,000. The trade's break even is at Rs 30,000 - Rs 100= Rs 29,900. Anything below the break even is your loss and depends on the extent in the rise of the price.

Payoff for different strike prices on expiry

Strike Price on Expiry	Pay Off= Break Even-Strike Price= (Max loss cannot be more than Rs 100)
29,600	300
29,700	200
29,800	100
29,900	0
30,000	-100
30,100	-100
30,200	-100
30,300	-100
30,400	-100

PAYOFF CHART LONG (BUY) PUT COMMODITY POSITION

SHORT (SELL) PUT PAYOFF FOR COMMODITY OPTIONS

Suppose you want to invest in Gold Option and your view is that its price will increase in next couple of weeks. You sell a Put Option at a strike price of Rs 30,000 and you receive a premium of Rs 100.

The profit is is limited to premium paid i.e. Rs 100 in a Short Put Commodity Option while the risk is unlimited.

Scenarios-

When the strike price of Put option at expiry is less than Rs 30,000. You will allow the option to expire worthless and retain the premium of Rs 100 paid.

When the strike price of Call option at expiry is above Rs 30,000. Your trade will break even at Rs Rs 30,000 - Rs 100= Rs 29,900. Anything above the break even is your profit.

Here's the Payoff for different strike prices on expiry

Strike Price on Expiry	Pay Off= Strike Price- Break Even= (Max profit cannot be more than Rs 100)
29,600	-300
29,700	-200
29,800	-100
29,900	0
30,000	100
30,100	100
30,200	100
30,300	100
30,400	100

PAYOFF CHART SHORT(SELL) PUT COMMODITY POSITION

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