Drawing Option Payoff Diagrams in Excel

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This is part 5 of the Option Payoff Excel Tutorialwhich will demonstrate how to draw an option strategy payoff diagram in Excel.

One decision we need to make is the range of underlying prices that our diagram will cover. We will make the underlying price range easy to change by setting up two cells for user input — chart start in cell I5 and chart increment in cell I6, as the screenshot below shows.

The formula in cell B13 is:. This will enable us to copy the formula from cell B13 to the cells below it. Each subsequent row will show underlying price higher than the previous one, with the increment set in cell I6.

Copy cell B13 to 48 following payoff diagram options excel — cells B14 to B Then test your formulas by changing the chart settings in cells I5-I6 and make sure column B is showing the underlying prices that you expect. For example, this is chart start set to 10 and increment set to 2. Now we have X-axis ready and can calculate the payoff at each point.

Of course, the formulas in all rows will be the same — we will create them in payoff diagram options excel first row row 12 and then copy them to the other rows. We can use the formulas which we already have in rows 8 and 9, but will have to make a few adjustments. Now we can copy the formula that we have created in cell C12 to all other cells in the CF61 range.

Now we can just create a standard line chart with values range GG61 and labels range BB It will show the payoff diagram for our strategy. We can control the payoff diagram options excel price range effectively zoom in or out by changing the chart settings in cells I5-I6.

We can also display payoff diagrams for individual legs — in such case the chart series value range will be CC61, DD61 etc. There is of course plenty of room for improvement in terms of layout and visual design — you can change the colors or locations of different parts to adjust the spreadsheet to your preferences, you can make the chart bigger and more prominent etc. In next two parts of the tutorial, we will look at the calculation of maximum profit, maximum loss and risk-reward ratio.

Go to next part: If you don't agree with any part of this Agreement, please leave the website now. All information is for educational purposes only and may be inaccurate, incomplete, outdated or plain wrong. Macroption is not liable for any damages resulting from using the content. No financial, investment or trading advice is given at any time. Home Calculators Tutorials About Contact. Tutorial 1 Tutorial 2 Tutorial 3 Tutorial 4. Drawing Option Payoff Diagrams in Excel. Underlying Price Range One payoff diagram options excel we need to make is the range of underlying prices that our diagram will cover.

The formula in cell B13 is: Notice the dollar sign absolute reference before the B, but no dollar sign relative reference before the payoff diagram options excel When we copy the formula to other cells, this will make the formulas in the other columns C, D, E still point to column B, but each row will use its own underlying price input. For similar reasons, we must adjust the references to cells C3, C4, C5 and place dollar signs this time before the row number, but not payoff diagram options excel the column letter.

It is just like the end of the formula in cell C9, but this time without the ABS, because we also need the direction. Make sure you get the dollar signs right. Next Steps There is of course plenty of room for improvement in terms of layout and visual design — you can change the colors or payoff diagram options excel of different parts to adjust the spreadsheet to your preferences, you can make the chart bigger and more prominent etc.

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In this Option Payoff Excel Tutorial you will learn how to calculate profit or loss at expiration for single option , as well as strategies involving multiple options, such as spreads , straddles , condors or butterflies , draw option payoff diagrams in Excel , and calculate useful statistics for evaluating option trades, such as risk-reward ratios and break-even points.

During the 9 parts of the tutorial, we will create a spreadsheet from scratch, starting from very simple calculations and adding one feature at a time. The tutorial assumes at least basic understanding of how options work — you should be familiar with basic terms and concepts such as strike price, underlying price, expiration, the difference between calls and puts, and the mechanics of long and short option trades.

To be able to go through the tutorial and successfully replicate the calculations, you only need basic Excel skills, such as entering formulas, basic arithmetics, copying, inserting and deleting cells, rows and columns, or creating simple line charts.

This tutorial will not use or teach any macros or VBA. Most readers will be already familiar with most of these, but each will be briefly introduced before we use it — at least what inputs it takes, what it returns, and how it relates to the thing we are trying to do at the moment. The more advanced ones will get a bit more detailed explanation. We will also pay attention to the issues of design, performance, and making our spreadsheets clean and user-friendly.

Sometimes more than one solution to the same problem will be introduced and we will discuss why one formula or structure may be better than another, even when both lead to the same result. Many readers will find they have learned as much about Excel itself as about the option strategy calculations. If you have any questions or suggestions, please feel free to contact me. Continue to part 1: If you don't agree with any part of this Agreement, please leave the website now.

All information is for educational purposes only and may be inaccurate, incomplete, outdated or plain wrong. Macroption is not liable for any damages resulting from using the content. No financial, investment or trading advice is given at any time. Home Calculators Tutorials About Contact. Tutorial 1 Tutorial 2 Tutorial 3 Tutorial 4. Option Payoff Excel Tutorial. Required Knowledge of Options The tutorial assumes at least basic understanding of how options work — you should be familiar with basic terms and concepts such as strike price, underlying price, expiration, the difference between calls and puts, and the mechanics of long and short option trades.

Required Excel Skills To be able to go through the tutorial and successfully replicate the calculations, you only need basic Excel skills, such as entering formulas, basic arithmetics, copying, inserting and deleting cells, rows and columns, or creating simple line charts.