---
title: "How to Read and Build an Option Payoff Diagram"
description: "Read a payoff diagram from the axes inward, then build one leg by leg on a dated NSE Nifty chain: floors, breakevens, slopes, and what the picture hides."
source_url: "https://www.rupeecase.com/learn/path-17/module-17-1-payoff-diagrams"
---

[Path 17 1 of 23](/learn/path-17/)Reading and building payoff diagrams[Next 17.2](/learn/path-17/module-17-2-bull-call-and-bear-put-spreads)

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

1. Read the axes, the flat parts, the slopes and the breakevens of a payoff diagram.
2. Build the diagram of a two leg position by adding the legs level by level.
3. Say what a payoff diagram leaves out: likelihood, costs and the time before expiry.

Watch in the terminal: what do hit rate, payoff and expectancy mean? A short tutorial on sample data.

## The idea, plainly

[How to read a payoff diagram](/learn/questions/how-to-read-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

One lot of the 23,050 put bought for Rs 6,461 on 10 Jun 2026, weekly expiry 16 Jun. The line bends at the strike and crosses zero at the breakeven. The No cap tag only means the gain runs past the edge of the chart: a put can gain at most its strike times 65, less the premium, if the index fell to zero. Source: NSE end of day data, computed by RupeeCase. As of 10 Jun 2026.
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

One lot of the 23,450 call bought for Rs 5,450 on the same day. Source: NSE end of day data, computed by RupeeCase. As of 10 Jun 2026.
Add the two lines: a flat floor between the strikes and a rising arm on each side

The solid line is the sum of the two legs at expiry, with breakevens at 22,866.75 and 23,633.25 on the index. The dashed line is the same position with 3 days to expiry. It sits higher because time value is still alive. Source: NSE end of day data, computed by RupeeCase. As of 10 Jun 2026.
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](/learn/path-14/module-14-8-theta-time-decay).

## 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](/learn/path-14/module-14-7-delta), and not a forecast. The line also leaves out STT, brokerage and other charges, which lower the whole line ([module F06](/learn/path-12/module-12-6-cost-of-an-fo-trade)).

## 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

From the module glossary; every term is in the Learn glossary too. Source: Module 17.1, Reading and building payoff diagrams.

## 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.

Watch in the terminal: what do index, fund and strategy lines show? A short tutorial on sample data.
**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](https://www.sebi.gov.in/reports-and-statistics/research/aug-2026/study-profitability-of-individual-traders-in-the-equity-derivatives-segment-fy25-fy26-_103835.html)

What does Reading and building payoff diagrams cover?A payoff diagram is a table of results drawn as one line. How to read its axes, build it from legs, and know what it cannot tell you. It works through The idea, plainly, Worked example: one position, three settlement levels, The common mistake, Key takeaways. It is module 17.1 of Path 17, Strategies and Hedging, about 7 minutes of reading, free.

TTry it

## Payoff builder, on the same example.
Legs from a dated chain, the expiry and before expiry curves, breakevens and the charges. Dated NSE end of day data, nothing live, no orders.

**Payoff builder**, Nifty, 10 Jun 2026, 16 Jun 2026 expiry.

[Open the payoff builder](/learn/tools/payoff-builder?chain=NIFTY_2026-06-10_2026-06-16&preset=long-strangle)

  AF&O on RupeeCase

## Hedging only, in development
F&O at RupeeCase will do one job: protect a portfolio you already own, by a rule published before it runs. No speculation, no naked option selling, no leveraged bets. It is not available yet.

  [How hedging will work](/hedging)[Sign up for RupeeCase](https://invest.rupeecase.com/signup)

  [No hedgeFalls with the marketWith a putA floor, for a premiumIllustration with made up numbers, not a product and not a recommendation.](/hedging)

QQuick check

## 10 questions, 7 to pass.
Each attempt draws 10 of the 15 questions in this module's bank, and a retake draws a fresh set. A pass gives this module's Certificate of Completion. Your result stays on this device and counts towards the Path 17 certificate.

7 of 10 correct passes module 17.1

Every answer is explained when you check; a retake is always free. Source: RupeeCase Learn quiz rules (70% to pass).

  Passed

###

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CCheck yourself

## Path 17 so far.
Your quick check results on this device, stop by stop.

Stop 1 of 23 on Path 17

Strategies and Hedging: every live stop, this module ringed. Source: RupeeCase Learn, Path 17.

1. [17.1Reading and building payoff diagramsNot yet](/learn/path-17/module-17-1-payoff-diagrams#quiz)
2. [17.2Vertical debit spreads: bull call and bear putNot yet](/learn/path-17/module-17-2-bull-call-and-bear-put-spreads)
3. [17.3Covered call, protective put and cash secured putNot yet](/learn/path-17/module-17-3-covered-call-and-protective-put)
4. [17.4Why and when to hedge: insurance in plain numbersNot yet](/learn/path-17/module-17-4-why-hedge)
5. [17.5Straddles and strangles, long and shortNot yet](/learn/path-17/module-17-5-straddles-and-strangles)
6. [17.6Credit spreads: bull put and bear callNot yet](/learn/path-17/module-17-6-credit-spreads)
7. [17.7Iron condor and iron fly on NiftyNot yet](/learn/path-17/module-17-7-iron-condor-and-iron-fly)
8. [17.8Butterflies and broken wing butterfliesNot yet](/learn/path-17/module-17-8-butterflies)
9. [17.9Option calendar spreadsNot yet](/learn/path-17/module-17-9-option-calendar-spreads)
10. [17.10Choosing a strategy by view: direction, volatility and timeNot yet](/learn/path-17/module-17-10-strategy-by-view)
11. [17.11Adjustments: what they really do to riskNot yet](/learn/path-17/module-17-11-option-adjustments)
12. [17.12Expiry day: gamma, theta, settlement and the rulesNot yet](/learn/path-17/module-17-12-expiry-day)
13. [17.13Hedging a stock portfolio with Nifty putsNot yet](/learn/path-17/module-17-13-hedging-with-nifty-puts)
14. [17.14Collars and put spreads as cheaper hedgesNot yet](/learn/path-17/module-17-14-collars-and-put-spreads)
15. [17.15Hedging mutual fund portfolios: beta and basisNot yet](/learn/path-17/module-17-15-hedging-mutual-fund-portfolios)
16. [17.16Ratio spreads and backspreadsNot yet](/learn/path-17/module-17-16-ratio-spreads-and-backspreads)
17. [17.17Diagonals and double calendarsNot yet](/learn/path-17/module-17-17-diagonals-and-double-calendars)
18. [17.18P&L attribution by GreeksNot yet](/learn/path-17/module-17-18-pnl-attribution-by-greeks)
19. [17.19Event hedging with event varianceNot yet](/learn/path-17/module-17-19-event-hedging)
20. [17.20Tail hedging and long dated Nifty optionsNot yet](/learn/path-17/module-17-20-tail-hedging)
21. [17.21Hedging an option selling book: wings, vega, gaps and margin stressNot yet](/learn/path-17/module-17-21-hedging-an-option-selling-book)
22. [17.22Kelly and sizing for option strategiesNot yet](/learn/path-17/module-17-22-kelly-sizing)
23. [17.23Risk for option books: scenarios, stress, VaR, ES and margin shocksNot yet](/learn/path-17/module-17-23-option-book-risk)
24. [TPath test, 30 questionsNot yet](/learn/path-17/module-17-23-option-book-risk#pathTestSection)

Path 17 in reading time: 215 minutes over 23 modules

Minutes of reading per module, this one in amber. Source: RupeeCase Learn, Path 17.

    Explore next

## Put the module to work.

* [Free module 14.3Buyer or seller: payoffs, margin, win rate and expectancy9 min read](/learn/path-14/module-14-3-option-buyer-vs-seller)
* [Free module 17.2Vertical debit spreads: bull call and bear put8 min read](/learn/path-17/module-17-2-bull-call-and-bear-put-spreads)
* [Free module 17.3Covered call, protective put and cash secured put8 min read](/learn/path-17/module-17-3-covered-call-and-protective-put)
* [Free module 17.5Straddles and strangles, long and short8 min read](/learn/path-17/module-17-5-straddles-and-strangles)
* [QuestionHow do I read a payoff diagram?A short answer with a dated chart](/learn/questions/how-to-read-payoff-diagram)
* [Path 17Strategies and hedging23 modules live, 0 coming next](/learn/path-17/)

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SSources

## Go to the source.
4 sources, Book the most cited

The publisher of each source listed below. Source: Module 17.1 source list.
1. [NSE, equity derivatives contract specifications (lot sizes, strikes, European exercise)](https://www.nseindia.com/static/products-services/equity-derivatives-contract-specifications) NSE
2. [SEBI Investor, Understanding derivatives](https://investor.sebi.gov.in/understanding_derivatives.html) SEBI
3. [NISM, Series VIII Equity Derivatives certification examination: test objectives](https://www.nism.ac.in/revamp-nism/test-objectives-revised-nism-series-viii-equity-derivatives-certification-examination/) NISM
4. Hull, J., Options, Futures, and Other Derivatives, Pearson (trading strategies involving options) Book

GTerms

## 4 terms from this module.
Payoff diagramA chart of the profit or loss of a position at expiry against the settlement level of the index. It shows how much, not how likely.
BreakevenThe index level at which a position neither gains nor loses. For a bought option it is the strike moved by the premium paid.
LegOne option or future inside a position. The payoff of a position is the sum of the payoffs of its legs.
StrangleA call and a put at different strikes and the same expiry, bought or sold together. Bought, it loses both premiums if the index settles between the strikes.
[All 230 terms in the glossary](/learn/glossary)

[Question people askHow do I read a payoff diagram?A short answer with a dated chart](/learn/questions/how-to-read-payoff-diagram)[Related module17.2 Vertical debit spreads: bull call and bear put8 min, Beginner](/learn/path-17/module-17-2-bull-call-and-bear-put-spreads)[Related module17.3 Covered call, protective put and cash secured put8 min, Beginner](/learn/path-17/module-17-3-covered-call-and-protective-put)[Pillar guideDerivatives and Quant115 modules across paths 12 to 19](/learn/derivatives)

Education only, not investment advice, a research report or a recommendation to buy, sell or hold any security. RupeeCase (QC Alpha Technologies Pvt Ltd) is not registered with SEBI as an investment adviser or research analyst. Contracts and prices shown are for illustration only, come from NSE end of day files at least 30 days old, and are not recommendatory. Derivatives trading carries a high risk of loss.