My brain is dead again and I hate options. Is anyone capable of explaining why the breakeven on calls is Strike + Premium and puts is Strike - Premium. And on covered calls its Stock Price - premium and protective puts its Stock Price + premium. The graphs for puts and covered calls look the same and the graphs for Protective puts and calls look the same, so I am having trouble wrapping my arms around why one uses stock price and the other uses strike price.
MT327 Wrote: ------------------------------------------------------- > My brain is dead again and I hate options. Is > anyone capable of explaining why the breakeven on > calls is Strike + Premium and puts is Strike - > Premium. And on covered calls its Stock Price - > premium and protective puts its Stock Price + > premium. > > The graphs for puts and covered calls look the > same and the graphs for Protective puts and calls > look the same, so I am having trouble wrapping my > arms around why one uses stock price and the other > uses strike price. it is too late to really get it. and derivatives is a small part of exam. i would do what i did, memorize all the formulas, i am doing very well on all option problems and i memorized all the rules for payoffs, breakevems, vlaue, lower bounds, nax gain etc tip: grapgh for prot put looks l ike long call and grapgh for cov call looks like sell put boom
Know the equation for put-call parity. It will clear so much up for fiduciary, covered and protective. There is some cancelling out that goes on, thus the stock price. Normal call, say you buy a call for $5, stock is trading at 30. You get to exercise at 40 = strike, stock goes to 50 = exercise price. You paid $5 + $40 (strike)…so you make $50-45. At $45, you would breakeven.