Before drawing a derivative payoff diagram, what should I identify first?

Identify the contract type and the side of the trade. A long forward, short forward, long call, short call, long put, and short put all have different payoff directions.

Then mark the trigger price, such as the forward price or option strike. Finally, decide whether the question asks for payoff or profit. Premiums affect option profit, but they are not part of the option payoff at expiration.

For example, a long call with strike 40 has payoff max(0, S - 40). If the call premium was 4, profit is payoff minus 4.