P&L diagrams and visualization
PayoffPayoffA profit-and-loss profile plotted against price (a diagram).Read the lesson → (P&LP&LProfit & Loss — used to evaluate strategy results.Read the lesson → — profit and loss) diagrams are the core tool for understanding options strategies. They show how much you'll earn or lose depending on the final price.
How to read a diagram
X axis = price at expiry (e.g., SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → price) Y axis = your profit or loss ($) Line = the result at each price Horizontal line at 0 = breakeven (the point of neither profit nor loss)
1. Long Call — the right to buy
You buy a call option when you expect the price to RISE.
Below — the same idea as a schematic:
P&L ($)
+ /
| /
| /
0 --/--------→ Price
| ↑ strike
-__| (loss = premium)
| Parameter | Value |
|---|---|
| Max loss | PremiumPremiumThe price of an option. Paid by the buyer, received by the seller.Read the lesson → (fixed) |
| Max gain | Unlimited |
| BreakevenBreakevenThe breakeven point — the price at which a position is neither profitable nor at a loss.Read the lesson → | StrikeStrikeAn option's exercise price. A $90 put means the right to sell at $90.Read the lesson → + premium |
| Use | Speculating that the price will rise |
2. Long Put — the right to sell (insurance)
You buy a put option when you want to PROTECT against a drop.
P&L ($)
+
|\
| \
| \
0 --\--------→ Price
↑ strike
----| (loss = premium)
| Parameter | Value |
|---|---|
| Max loss | PremiumPremiumThe price of an option. Paid by the buyer, received by the seller.Read the lesson → |
| Max gain | StrikeStrikeAn option's exercise price. A $90 put means the right to sell at $90.Read the lesson → − premium (if price → 0) |
| BreakevenBreakevenThe breakeven point — the price at which a position is neither profitable nor at a loss.Read the lesson → | StrikeStrikeAn option's exercise price. A $90 put means the right to sell at $90.Read the lesson → − premium |
| Use | In our strategy — portfolio insurance |
3. Short Put — the obligation to buy
You sell a put — you receive a premium, but you take on the obligation to buy if the price falls.
P&L ($)
+ ______ (premium = max gain)
| /
0 ------/-------→ Price
| / ↑ strike
- /
Notice: the Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → is a mirror of the Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → — profit is fixed at HIGH prices (on the right), while the loss grows as the price falls (on the left).
| Parameter | Value |
|---|---|
| Max gain | PremiumPremiumThe price of an option. Paid by the buyer, received by the seller.Read the lesson → |
| Max loss | StrikeStrikeAn option's exercise price. A $90 put means the right to sell at $90.Read the lesson → − premium (if price → 0) |
| BreakevenBreakevenThe breakeven point — the price at which a position is neither profitable nor at a loss.Read the lesson → | StrikeStrikeAn option's exercise price. A $90 put means the right to sell at $90.Read the lesson → − premium |
| Use | In our strategy — part of the put spread |
4. Short Call — the obligation to sell
You sell a call — you receive a premium, but if the price rises above the strike, you have to sell.
P&L ($)
+___ (premium = max gain)
| ↑ strike
| \
0 ----\------→ Price
- \
| Parameter | Value |
|---|---|
| Max gain | PremiumPremiumThe price of an option. Paid by the buyer, received by the seller.Read the lesson → |
| Max loss | Unlimited (in theory) |
| BreakevenBreakevenThe breakeven point — the price at which a position is neither profitable nor at a loss.Read the lesson → | StrikeStrikeAn option's exercise price. A $90 put means the right to sell at $90.Read the lesson → + premium |
| Use | In our strategy — covered call |
5. Put Spread — our insurance structure
Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → (higher strike) + Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → (lower strike):
P&L ($)
+______ ← max protection (fixed below the lower strike)
| \
| \
0 -------\------------→ Price
| \__________ ← max loss = net premium
-
$60/$65 $90
(short put) (long put)
Our structure — all amounts are for the whole position, not per SOL:
Which base goes with which number?
The options base (200 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson →) is larger than the collateral in the portfolio (126 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →). That's a deliberate choice, not a mistake — but because of it, options P&LP&LProfit & Loss — used to evaluate strategy results.Read the lesson → is calculated from 200 / 100 / 100 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →, while collateral P&LP&LProfit & Loss — used to evaluate strategy results.Read the lesson → is calculated from 126 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →. Whenever you see a number, first check which base it was calculated from.
| Parameter | Value |
|---|---|
| Max loss | Net premium $500 (if SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → is above $90 at expiry) |
| Full protection | Between $65 and $90 |
| Max protection | ~$5,000 — fixed below $60 |
| BreakevenBreakevenThe breakeven point — the price at which a position is neither profitable nor at a loss.Read the lesson → | $90 − $500 / 200 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → = $87.50 |
| Tail risk | Below $60 — protection stops growing |
Why a Put Spread instead of a plain Put?
A plain Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → $90 (200 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →) costs ~$1,300. The two-leg Put SpreadPut SpreadLong put + short put. Cheaper protection than a plain put, but with limited coverage.Read the lesson → ($90/$65) — ~$800, i.e. 38% cheaper. Our three-leg version ($90/$65/$60) — ~$500. The cost drops, but so does the protection in a deep decline.
6. Covered Call
Short CallCallAn option type that grants the right to BUY at the strike price. The opposite of a put.Read the lesson → + holding the base asset (SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →/ETH):
P&L ($)
+ _______ ← from the strike, profit stops growing (max gain)
| /
| /
| /
0 -----------/-----------------→ Price
| / ← breakeven = entry − premium per unit
- /
Our example: 50 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → @ $88 + Short CallCallAn option type that grants the right to BUY at the strike price. The opposite of a put.Read the lesson → $160 (premium +$100, i.e. $2 per SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →)
| Parameter | Value |
|---|---|
| Max gain | ($160 − $88) × 50 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → + $100 = $3,700 |
| BreakevenBreakevenThe breakeven point — the price at which a position is neither profitable nor at a loss.Read the lesson → | Entry − premium per SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → = $88 − $2 = $86 |
| Risk | SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → price falls (the premium only cushions the first $2) |
How to read a combined P&L
Our whole strategy (Put SpreadPut SpreadLong put + short put. Cheaper protection than a plain put, but with limited coverage.Read the lesson → + Covered CallCovered CallAn options strategy: sell a call option while holding the underlying asset. Generates premium income but caps upside.Read the lesson →):
P&L ($)
+ __/ ← above $160 it rises more slowly
| __/ (Short Call covers 50 of 126 SOL)
| __/
| ______________________/
0 ------/---------------------------------→ Price
| /
- / ← below $60 there's NO floor: the options protection is fixed at ~$5,000,
/ while the collateral keeps falling in value (tail risk)
$60 $88 $160
Key points:
- Below $60: Put SpreadPut SpreadLong put + short put. Cheaper protection than a plain put, but with limited coverage.Read the lesson → protection locks at ~$5,000 — the overall result keeps falling as the price falls further (tail risk)
- $60-$65: partial protection — the Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → $65 is already losing, the Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → is still earning
- $65-$90: the Put SpreadPut SpreadLong put + short put. Cheaper protection than a plain put, but with limited coverage.Read the lesson → protection is fully active
- $64-$88: LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → fees accrue (this is the LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → range; outside it fees stop accruing without rebalancing — see 4-9)
- Above $160: Covered CallCovered CallAn options strategy: sell a call option while holding the underlying asset. Generates premium income but caps upside.Read the lesson → assignment (forced sale — you sell SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → for $160)
Neither the floor nor the ceiling is complete
The options quantities don't match the collateral: the Put SpreadPut SpreadLong put + short put. Cheaper protection than a plain put, but with limited coverage.Read the lesson → covers 200 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →, the Short CallCallAn option type that grants the right to BUY at the strike price. The opposite of a put.Read the lesson → — 50 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →, while the collateral is 126 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →. So below $60 the protection stops growing (there's no true floor), and above $160 the position still keeps rising, just more slowly (there's no true cap). In these diagrams, look not for a pretty shape but for where the protection ends.
Breakeven points
Summary
Once you can read a payoff diagram, you can read any proposed options structure in a few seconds — you see where its floor is, where its cap is, where the breakeven is, and you judge for yourself whether it fits your plan.
You only really understand a diagram once you draw it yourself. Grab a sheet of paper and one real option from the table (~20 min). No trading — just a pencil.
This is a paper drawing exercise — DO NOT BUY ANYTHING. We're learning to visualize profit and loss before any real decisions.
This is learning, not investing — use only small amounts you treat as tuition.
You just drew a payoff diagram yourself with real Deribit numbers — now you see an option as a shape, not just a row in a table. Most people never get there.