A payoff graph is a visual representation of potential profits and losses for a specific options trading strategy at various prices of the underlying asset.
You can see the Breakeven points clearly here!
The x-axis of the graph represents the price of the underlying asset while the y-axis represents the potential profit or loss.
For a call option, the payoff graph shows limited risk (the premium paid for the option) and unlimited potential profit if the price of the underlying asset goes up.
For a put option, the payoff graph shows limited risk (the premium paid for the option) and unlimited potential profit if the price of the underlying asset goes down.
For option spreads, such as bull call spreads or bear put spreads, the payoff graph shows the potential profit or loss at expiration based on the price of the underlying asset.
A breakeven point on the payoff graph is where the profit and loss line intersects with the x-axis, indicating the price at which the trader will neither make a profit nor a loss.
