16  •   The Intelligent Option Investor
It is important to note that a stock does not have to cross this line for 
your option investment to be profitable. We will discuss this dynamic in 
Chapter 2 when we learn more about the time value of options.
Visual Representation of Put Options
Now that you understand the conventions we use for our diagrams, let’s 
think about how we might represent the other type of option, dealing with 
downside exposure—the put. First, let’s assume that we want to gain expo-
sure to the downside potential of a stock. Graphically, we would represent 
this in the following way:
5/18/2012
-
20
40
60
80
100
120
140
160
180
200
5/20/2013 249 499
Date/Day Count
Stock Price
749 999
GREEN
First, notice that, in contrast to the diagram of the call option, the 
directional exposure of a put option is bounded on the downside by $0, 
so we do not draw an arrow indicating infinite exposure. This is the same 
downside exposure of a stock because a stock cannot fall below zero dollars 
per share.
In this diagram, the time range for the put option is the same 500 days 
as for our call option, but the price range at which we have exposure starts 
at a strike price of $50—the current market price of the stock—making this 
an at-the-money (ATM) put. If you think about moneyness in terms of a 
range of exposure, the difference between out of the money (OTM) and in 
the money (ITM) becomes easy and sensible. Here are examples of differ-
ent moneyness cases for put options: