On expiry day an option is worth only its intrinsic value. That is the amount by which it is in the money, and nothing if it is not. Time value has run out, so the payoff of a trade becomes a straight arithmetic function of the expiry price.
Definition and Formula
Before expiry, the price of an option carries two parts. One is intrinsic value, the amount by which the strike is favourable against the current price. The other is time value, which reflects the time remaining and the volatility expected in it. On expiry day the second part runs out.
What is left is arithmetic. A call is worth the expiry price minus its strike when that is positive, and nothing otherwise. A put is worth its strike minus the expiry price when that is positive, and nothing otherwise.
The payoff of a trade at expiry therefore bends only at its strikes and runs perfectly straight between them. That is what makes the maximum, the minimum and the break even points solvable rather than merely drawn. Each one sits at a bend, or on a straight piece between two bends.
Index options in India settle in cash against a settlement price computed by the exchange, not against the last traded price. Stock options may settle by delivery. That rule belongs to the instrument and is set by the exchange.
A break even is a price at which the payoff line crosses zero. A trade can have more than one, and it can have none at all. The line can run away without bound on one side. Where that happens, this site states that there is no bound rather than printing a figure.
One asymmetry is worth stating plainly. A long option cannot lose more than the premium paid, because its intrinsic value stops at zero. A short option has no such floor on the other side. The intrinsic value it owes keeps growing with the expiry price. That is why the payoff line on that side has no bound at all.
Formula: Call intrinsic = max(settlement − strike, 0) · Put intrinsic = max(strike − settlement, 0). Long P&L = (intrinsic − premium) × quantity · Short P&L = (premium − intrinsic) × quantity
A Worked Example
| Leg | Long call at 24,300 |
|---|---|
| Premium paid | 92.25 |
| Lots × lot size | 1 × 65 |
| Total quantity | 65 |
|---|---|
| Net premium (₹) | 5,996.25 |
| Maximum loss (₹) | −5,996.25 |
| Break-even | 24,392.25 |
| Upper bound | No upper bound |
Every figure in the result column is computed by the same code that runs the options profit calculator on this site. It uses the single leg above.
What This Number Tells You
The payoff at expiry states what a trade comes to at any given expiry price, on the premium already paid or received.
The break even states the expiry price at which that figure is exactly zero.
And What It Does Not Tell You
None of it states where the market will actually settle. The payoff is a function of a price that is not yet known.
The arithmetic covers expiry day alone. Before expiry, time value and volatility also enter the price, and neither appears anywhere in these formulas.
Brokerage, taxes and margin are not included. They are separate computations, and this site keeps them on a separate page.
Frequently Asked Questions
Why does the payoff line bend only at strikes?
Because intrinsic value is zero on one side of a strike and grows in a straight line on the other. Each strike adds one bend, and between two bends the line is straight.
How do index options settle in India?
In cash, against a settlement price computed by the exchange rather than the last traded price. Stock options may settle by delivery. The rule belongs to the instrument and is set by the exchange.
Can a trade have more than one break even?
Yes, and it can have none. Each is a point where the payoff line crosses zero, and a trade built from several legs can cross more than once.
Why does this site sometimes print "No upper bound"?
Because on some trades the payoff line keeps rising as the expiry price rises, with no bend to stop it. Printing a figure there would be inventing one.
Why is a long option bounded and a short one not?
Because intrinsic value stops at zero on one side and keeps growing on the other. A long trade cannot lose more than the premium paid; a short one has no equivalent floor.