# Bulls/Bears/Lions & Tigers

Yes or No Are you making it a point to memorize the various value @ exp, payoffs, breakevens for all option strategies? and A) You have already done so or B) You plan on doing if before the exam I was planning on doing it…thought these were pretty simple to work (which they are)…they are just pretty hard to memorize (easy to jumble) and now I am considering potentially spending my study hours elsewhere

You should understand the structure of the option strategies. If you know that and know the payoff of a put and a call(this should be trivial), the payoffs, etc should be easy to figure…I don’t think there is any memorization required.

Oh my?

These questions are freebies. Understand the strategies and solve the problems that way. Don’t waste time trying to memorize those silly formulas.

I’m not planning on memorizing the formulas. Most of the time I can easily figure out the payoffs without using the formulas from the book. I’ve lost enough money “investing” in options to solve these problems from experience

All you need to know for forumulas is: Value of Call = MAX(0,S-X) and Value of Put = MAX(0,X-S) Then just know what each strategy is and put a plus sign for a buy and a minus sign for a sell.

I agree…but you have to memorize…if your using puts or calls…if your long or short…and which 1 is which based on the higher/lower exercise prices. Plus I am afraid CFA is going to twist something…for example… They say a bull spread is when you buy a call with a x price and sell a call with a higher x price. They said you can use puts and calls for bear spreads…but for bull spreads they only mention calls. I’m afraid on the exam we’ll see something like…you buy a put with x price…and sell a put with a higher x price…this is something i didn’t see in the text.

you can use both calls and puts to construct bull and bear spreads even though its more naturall to construct bull by buying calls and construct bear bu bying puts just remember that bying bull = selling bear and selling bull = bying bear

As BigWilly said, just know : Value of Call = MAX(0,S-X) and Value of Put = MAX(0,X-S) Then quickly draw the pictures of the strategies - you can then figure it out from there.

I originally thought remembering these would be impossible but I’ve actually got them all in my head now simply by understanding exactly what it is you’re purchasing/selling the transaction and then just logically working it through in your head. That said, I do know the formulas which should add up to some freebie points if it’s on the exam. One point I will mention, anyone notice how CFAI has a section on GAMMA which is not covered in the Schweser notes?

was it a large section in CFAI? i know schweser just saying gamma is greatest when options are ATM or near expiration… and that it’s just change in delta over the change in stock price…

Know that “negative gamma” means you are short options and increased vol hurts you. In particular, if the underlier starts to move against you you lose money at an ever faster rate.