Knowledge Bite
December 2025 Highlight
The chart below shows a classic long call option payoff at expiration:
• X-axis: Futures Price (e.g., Oil, Natural Gas, Carbon Price, Cocoa, Coffee, Sonia)
• Y-axis: Profit/Loss
• The payoff line (blue) is flat and negative (equal to the premium paid) until the futures price reaches the strike price (labeled “A”).
• At the strike price, the payoff line slopes upward, showing unlimited profit potential as the futures price rises above the strike.
• The breakeven point (“B”) is where the profit line crosses zero, equal to the strike price plus the premium.
• The maximum loss is limited to the premium paid (“C”).
• The grey dotted line describes the linear profit and loss profile for a long futures position.
Here is an example scenario:
Consider a chocolate manufacturer exposed to cocoa price volatility. If cocoa prices spike, production costs rise, squeezing margins. By purchasing call options on cocoa futures, the manufacturer caps its cocoa cost at a known level while retaining upside if prices fall. This approach provides cost certainty without locking into a fixed-price situation as provided by a long futures position, preserving flexibility in a dynamic market.
To build your knowledge and practical application of these multi-dimensional tools, take a look at our Options Series of classroom, live virtual and digital courses.
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