On Tuesday 16 Jun 2026 Nifty settled at 23,989.15, its index close that day. Two options bought on 10 Jun for that expiry tell the story: the 23,450 call at Rs 83.85 a unit and the 23,050 put at Rs 99.40. The call finished 539.15 points in the money and made Rs 29,595 a lot. The put expired worthless and lost Rs 6,461 a lot. Together that is Rs 23,134. A payoff diagram is this sum worked out for every level at which the index could settle, drawn as one line. When I look at any position I read its diagram before I read its price, because it shows the worst case first.
3By the end you can
- Read the axes, the flat parts, the slopes and the breakevens of a payoff diagram.
- Build the diagram of a two leg position by adding the legs level by level.
- Say what a payoff diagram leaves out: likelihood, costs and the time before expiry.
The idea, plainly
How to read a payoff diagram comes down to this: start at the axes and work inward. The horizontal axis is the level at which the index settles at expiry. The vertical axis is profit or loss in rupees for the whole position, lots included, before costs. A sloping line means every index point is worth rupees to you. A flat line means the position has stopped caring about the index: that is a floor or a cap. A breakeven sits wherever the line crosses zero. And it bends only at a strike, because that is where an option's payoff changes direction.
Read one more paragraph, 93 words
Three shapes build every diagram you will meet. A future is a straight line through its entry price, with a slope of 65 for one lot, in rupees a point. A bought option is a hockey stick: flat at the premium on one side and a slope on the other. A sold option is the same stick turned over: a flat gain, then a slope into loss. A position with more legs is these sticks added together, so the flat parts and the slopes are the whole language. Two lots double every slope.
One leg: the bought put
Start with one leg. The 23,050 put costs Rs 99.40 a unit, so Rs 6,461 a lot. If the index settles at or above 23,050 the put is worthless and the line sits flat at that loss. Below the strike it gains a rupee a unit for each point lower, so the line climbs to the left. Its breakeven is the strike less the premium.
Bought call = max(S−K, 0) − c
Bought put = max(K−S, 0) − p
One leg: a flat loss above the strike, and a gain that starts below it
Read one more paragraph, 48 words
Every bought leg follows one line of arithmetic. S is the settlement level, K the strike, and c and p the premiums per unit. Multiply by the lots and 65 units. A sold option is the same with the sign flipped, so its diagram is the mirror image.
Building: add a leg, add the lines
Now add the 23,450 call, which costs Rs 83.85 a unit. The diagram of the pair is the sum of the two legs, level by level: add their rupee results at each point. Flat plus flat is flat. A slope plus a flat part is a slope. Between the two strikes both options are worthless, so the line is flat at minus both premiums, Rs 183.25 a unit and Rs 11,911 a lot. That floor is the most this position can lose.
A second leg: a flat loss below the strike, and a gain that starts above it
Add the two lines: a flat floor between the strikes and a rising arm on each side
Read one more paragraph, 48 words
The dashed line is the second thing to look for on any diagram. It is the position before expiry, and it lies above the solid line by the time value the options still hold. That gap closes as expiry nears, which is the story of module F22.
Worked example: one position, three settlement levels
Take the weekly chain of 10 Jun 2026, one lot of 65 units of each leg, before costs. The put side breaks even at the strike less the premiums paid, 22,866.75, and the call side at the strike plus them, 23,633.25. We read the line at three levels: the close on 10 Jun, the settlement on 16 Jun, and one downside level, the close of 7 Apr 2025, a stressed day, at 22,161.60. Results are rupees for one lot.
| Index settles at | Call, Rs | Put, Rs | Total, Rs |
|---|---|---|---|
| 23,214.95, the 10 Jun close | −5,450 | −6,461 | −11,911 |
| 23,989.15, the 16 Jun settlement | 29,595 | −6,461 | 23,134 |
| 22,161.60, the 7 Apr 2025 close | −5,450 | 51,285 | 45,835 |
Read one more paragraph, 144 words
Each row is one vertical slice of the chart. The first sits on the flat floor and loses both premiums, the largest loss on the diagram. The second sits on the right arm and the third on the left. It takes a move to get off the floor: the index must settle above 23,633.25 or below 22,866.75. The diagram does not say how likely that is. The chain does, roughly. The call at 23,650 and the put at 22,850 sit just beyond the breakevens, with deltas of 0.17 and minus 0.19. Add their sizes and the market prices about 36% for an index finish beyond either breakeven. That is an odds reading from prices, as in module F21, and not a forecast. The line also leaves out STT, brokerage and other charges, which lower the whole line (module F06).
The common mistake
The claim: The profit area on this diagram is huge, so the trade is likely to work.
A diagram shows how much you make or lose at each level and never how likely each level is. Here the call arm has no cap and the put arm runs all the way to an index of zero, and still the index must settle beyond a breakeven, which the chain prices at roughly one chance in three. The size of the green area and the chance of landing in it are different things. Ask three things of any diagram. Where is the flat part, and what does it cost? Where are the breakevens, set against how far the index usually moves in that time? And what does the dashed line say about waiting?
The term this section turns on: Breakeven
Key takeaways
- A payoff diagram plots profit at expiry against where the index settles.
- The line crosses zero at a breakeven and bends only at strikes.
- A position's line is the sum of its legs, level by level.
- Flat parts show a floor or a cap, sloped parts show exposure.
- The diagram shows how much, never how likely.
- It leaves out costs, margin and the value before expiry.
Before you trade. Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. Read the SEBI study