Need DQ Answer 300 words, no palgiarism, use 3 references and in-text citation and turn it in for the content.

The Payoff Diagram

The call option gives one the right to buy an underlying security at a given price. The Y-axis of the payoff diagram shows the options total profit or loss while the X-axis shows the market price. In a situation where the underlying market price is below the strike price X, the option expires, and the total result from the call trade is a loss which is equal to the initial price.

When the underlying market price equals the strike price X, exercising the option makes no sense. At this point, the payoff of a call option is still at a loss, which equals the initial cost (Tompkins, 2016). When the market price is higher than the strike price, the option is in the money and exercising it becomes sensible because it allows buying the underlying at the strike price and sells at the underlying price. When the market price becomes higher than X + m, the owner will be making profits.

Reference

Tompkins, R. (2016). Options explained2. Springer.