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DocumentationPayoff Lab

Payoff Lab: Strike Comparison

How strike changes the upside cap and the premium-versus-participation tradeoff.

#Three capped payoffs

Covered-call payoff at strikes 190, 200 and 220K = 190K = 200K = 220Stock price at expiryValue before premium
Premium is omitted so the effect of strike alone remains visible.

A lower strike reaches its flat region earlier. A higher strike keeps rising over a wider Stock Token price range. Premium is omitted so the geometry remains comparable.

#Economic comparison

Strike choicePremium tendencyUpside retainedRally underperformance
LowerGenerally larger, all else equalLessBegins earlier
Near spotOften substantial time valueLittle before capBegins near spot
HigherGenerally smaller, all else equalMoreBegins later

#Compare the complete payoff

Premium alone does not rank strikes. Compare the terminal payoff, term, implied volatility, liquidity and economic notional together.

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