Which option payoff diagrams are considered similar? Is it Long Call similar to a Short Put, and vice versa? I think I saw this as a question somewhere but I can’t place it. Any insight / guidance would be appreciated. Cheers!
I’ve seen a couple questions on this. I think it is: a covered call is similar to a short put and a protective put is similar to a long call.
well that may have to do with put-call parity i think, this question specifically mentioned the payoff / payoff diagram.
NICE! Thanks man. Are you perpetually on these forums Dinesh? Where are you based?
niraj_a Wrote: ------------------------------------------------------- > NICE! Thanks man. Are you perpetually on these > forums Dinesh? Where are you based? nope, These days have stopped lurking around too much in here. Based in New York City.
I remember this by drawing the following diagram…kinda hard to draw in a post but maybe it will help? / \ LC / \ LP PP / \ -------------- --------------- -------------- --------------- SC \ / SP \ / CC \ /
yeah…that really did not turn out the way that it was supposed to…sorrry
put call parity +C + X/(1+r)^t = +P +S +C = long call +P = long put +S = long stock + X/(1+r)^t = forget about it right now. simplified it comes to +P+S=+C long stock means +S=+C-P (long call and short put) you want a short put ? -P=+S-C … just rearrange +P+S=+C
gotcha. good luck on this! i’ll be hangin aroun this forum a bit until d-day.
thanks all for the quick explanations, this was fairly easy to grasp. good luck to you all! p.s. - my level 2 grad friends tell me that endurance and focus is what is really tested on these, especially the two hour break makes one impatient which tends to have people make mistakes in the PM session.