Risk map
Maximum profit and maximum loss by strategy
Options strategies can have defined or open-ended payoff profiles. Know which one you are modeling before focusing on the target-price result.
Defined-risk long premium
Long calls and puts risk the premium paid, but they still can expire worthless.
Stock-like downside
Covered calls and cash-secured puts can lose substantially if the underlying falls.
Defined-risk spreads
Vertical spreads cap both risk and reward based on strike width and net debit or credit.
StrategyBreakevenMax lossRisk note
Long callStrike + premiumPremium paidNeeds upside move and time/volatility can matter before expiration.
Long putStrike - premiumPremium paidDownside move must overcome premium and friction.
Covered callShare basis - premiumStock downside less premiumUpside is capped if assigned; downside remains stock-like.
Cash-secured putStrike - premiumStrike less premium, to zeroAssignment can create stock ownership at an unfavorable basis.
Vertical spreadLong strike plus/minus net debitNet debit paidDefined risk and defined reward depend on spread width.
Primary reading: OIC Profit and Loss Simulator · FINRA options overview · SEC Investor Bulletin on options · OIC options pricing overview