Option payoff diagrams, Epitrain

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Payoff Diagrams Ok boys and girls, let's walk thru this thing again. Long Futures Let's say we're trading some instrument. It can be anything - DBS shares, USD's (viewed as a commodity, paid for in SGD), whatever. The concepts remain the same. Let's assume the instrument trades in incremental values of $1 Let's assume we are long the underlying instrument at the price of $5, and that's the only position we have. Our P&L profile will look like this: Current Price of Underlying Instrument

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

Long at $5

-$4

-$3

-$2

-$1

$0

$1

$2

$3

$4

$5

At the price of $5, our P&L is zero (assuming no transaction costs). As prices of the underlying rise above $5, we start making money. As they fall below $5, we start losing money.

Long at $5 Profit $6

Long at $5

$4 $2 $0 -$2

1

2

3

-$4

4

5

6

7

8

9

10

current price

-$6 Loss

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