Option payoff diagrams demystified notes

Hi friends,

Once again I am here to contribute to CCI. This time with Derivative: Option Contracts specifically  How to construct a pay-off diagram for any strategy. The reason why I made this is that during my college days when the teacher taught us option strategies many of my classmates fumbled in understanding pay-off diagrams for strategies. The diagram is constructed to give us a glimpse of what a particular strattegy objective is and present these in a simple manner eaier to understand. But in my case it was the reverse as many of us started asking why isProtective Put payoff diagram looks exactly like Long call or why covered call looks like Short Put diagram. In the end without understanding these we jus blindly accepted them and memorized the whole strategy including the components, diagram, maximum profit, maximum loss and break even positions. Making this simple topic even more difficult.. I dunno how the books explain them like Pattabhi Ram Sir's book but I tried my level best in presenting  this step by step. Personally I like this topic so I want to do justice to the readers who approach with the intention to learn it.

I explained it with 4 illustrative strategies

1. Covered Call
2. Married or Protective Put
3. Collar
4. Iron Condor (not part of final syllabus, considered as a very advanced strategy.. point is even the difficult strategy can be tackled with this approach)

All the best and cheers..

J.Jairam