# i gave up on derivatives and alternative investment

tried the questions in book 6 of the cirriculum, realised i absolutely dont understand the last book at all. only know the basics, different types of funds, what are the common derivative contracts. absolutely dont understand net operating cash flow in valuation property (do you include depreciation or not when you have maintanence cost?) put call parity (i know the equation C+PV of X=P+S, ok so what?) min. max value of am/european call and put— this is just a mess. i am only getting about 50% of this section right, its only 8%. i think i’ll just have to ignore it.

Hey, I wouldn’t give up on this section if I were you…It’s only 8% but if you can get the basics down then the extra points will add up… as for Real Estate Property valuation…depreciation is NOT included since the maintenance is assumed to maintain the property value (offset the depreciation). Lower/Upper Bounds of put and calls is very simple if you think logically with it…Try re-reading it and maybe it will help. Put Call Parity I think could be a question seeing how it’s very important in Option Pricing…As long as you can remember the main formula, just plug in the numbers to see whether or not the parity holds! FRA is a question I can see them asking…long position wants rates to increase…and a key point in my mind is, for e.g., if it’s a 30-day contract on the 90-day LIBOR rate, you need to discount it using the 90 days, NOT 30… i.e., the payment is actually made at the 90 day point, and not 30 (rather counter intuitive at first) Anyway, this may be of no help, but I hope it is, and that my points are correct.

I know a lot of it was pure luck, but I guessed on about 60% of the AI and Derv. questions on the mock and I got 90% of them right. Just make sure the answers are logical and they probably are right…

Well I hope that you pass but, AI & Derivatives are in LII and LIII as well, so you might as well try to nail down the basics now because they only get much harder.

as for Real Estate Property valuation…depreciation is NOT included since the maintenance is assumed to maintain the property value (offset the depreciation). this is what i thought as well, i definitely have seen on two occasions that depreciation being included when there is a maintanence cost. e.g. question 27 in the book of alt investment. this just confused me big time, i think i am going to include it for NOI valuation but not include for the discounted cash flow valuation

“Well I hope that you pass but, AI & Derivatives are in LII and LIII as well, so you might as well try to nail down the basics now because they only get much harder.” thanks for the heads up, this is a section thats definitely dont stick for me (actually he entire cirriculum is like that), if i am going to proceed with level 2, definitely going to make sure have more practice on this section.

lzen5 Wrote: ------------------------------------------------------- > “Well I hope that you pass but, AI & Derivatives > are in LII and LIII as well, so you might as well > try to nail down the basics now because they only > get much harder.” > > > > > thanks for the heads up, this is a section thats > definitely dont stick for me (actually he entire > cirriculum is like that), if i am going to proceed > with level 2, definitely going to make sure have > more practice on this section. I’m on LII now and I can remember Derivatives did not come that easily for me. I’m no mathematical genius so I worked problems to the point where it eventually all “clicked” . I believe I finished every Derivative problem in the Qbank for my LI prep. If you can’t work the problems make sure you understand the fundamentals of each: FRAs, Forwards, Futures, Options, Swaps. Do what you can. There’s still a week left to boost that 50 to a 70. Hunker down.

yeah derivatives is a lot of “tough” material for a small %, but don’t give up on AI at least! 2 readings of memorization

“I’m on LII now and I can remember Derivatives did not come that easily for me. I’m no mathematical genius so I worked problems to the point where it eventually all “clicked” . I believe I finished every Derivative problem in the Qbank for my LI prep. If you can’t work the problems make sure you understand the fundamentals of each: FRAs, Forwards, Futures, Options, Swaps. Do what you can. There’s still a week left to boost that 50 to a 70. Hunker down.” Qbank is ok, i am getting 80% right, i am tallking about questions in the cirriculum after each reading. they are really hard. i can see how the cirriculum is trying to prepare students for level 2. Even tho I remember a few important formulae to get through Qbank, i honestly dont understand process conceptually (its not in the LOS). i guess i’ll do more reading after the exma when i have more time.

When I was studying for L1, I found that thinking in terms of diagrams helped a lot with put-call parity. I’m not sure if this was the site I used, but it communicates the idea that I still use to this day to remember put-call parity: http://www.theoptionsguide.com/understanding-put-call-parity.aspx

took some time to understand the second diagram but finally got it…good stuff…Thanks! bchadwick Wrote: ------------------------------------------------------- > When I was studying for L1, I found that thinking > in terms of diagrams helped a lot with put-call > parity. > > I’m not sure if this was the site I used, but it > communicates the idea that I still use to this day > to remember put-call parity: > > http://www.theoptionsguide.com/understanding-put-c > all-parity.aspx

If you have time, just go over both those sections from the Eleventh Hour/Secret Sauce. Derivatives and AI questions on the exam are usually quite simple. For example, you’ll probably see questions on NOI/ real estate valuation/ VC valuations, ETFs and hedge funds from the AI section.

its tricky i agree…no mtterr how many times i read the staging of financing for VC’s i cant get the right answer unless by luck!!.. For options, when they ask for “pay-off”, dont worry bout the natty formulas…just calculate the total g/L which includes the premium when u see the word “value”, thats when u need to put the numbers in the formulas, with the exception of when its at maturity u dont need to discount anything. Def remember covered call P/L diagram is like a short put and Protective Put P/L diagram is like a long call Hedge Funds : 1)Option Fee like 2) Focus on Absolute Returns 3: Underestimates risk and overestimate returns (based on those biases) 4) The emerging market fund falls under Global Macro funds and their shares really cant be short Commodities: Just Remember “New Cen tury Probabibly Bankrupt” my mnemonic for Roll Yield/Convenience Yield: N…egative C…ontango…P…ositive B…ackwardation + correlated with inflation and negative correlated with stocks and bonds

I am a charterholder, I would definitely know put call parity. Simple formula, and they asked it on my exams a couple of times. Usually just the plug and chug method. They give you 3 of the inputs, you solve for the remainder type of question.

Rydex Wrote: ------------------------------------------------------- > I am a charterholder, I would definitely know put > call parity. Simple formula, and they asked it on > my exams a couple of times. Usually just the plug > and chug method. They give you 3 of the inputs, > you solve for the remainder type of question. Yup. You are guaranteed to use the formula at least once on the L1 exam.