Hi guys. I’m really struggling with the option formulae. I know I should do it via the graphs, which I can just about remember. Does anyone have any straighforward tips for remembering (working out) max/min profit and b/e? Any help would be greatly appreciated.
find a pattern, start from maximum loss formula.
from that, you can pretty much derive most of the formulas.
I’m with you. That is one of my weak areas and I am not sure if the time it will take to nail it is worth it from a cost/benefit standpoint (i.e time not spent on IPS…etc.).
Easiest way to learn this stuff is to take it on eposition at a time. So given a strategy, know what the strategy is, and analyze each leg of the strategy on its own. Once you do that, you can combine them all. Do you have a specific question/type of problem to post?
My eguidebook to options:-
Know the strategy. What options the strategy use. Have a photograpihc memory of the payoff diagram.
Echoing Spanish, tackle one financial instruments at a time (i.e. stocks, call, put)
Remember the payoff formula;
- long call = +Max(0 , S - X)
- short call = - (Max 0, S - X)
- long put = + Max(0 , X - S)
- short put = - (Max (0, X - S)
- and dont forget the premiums, pay or receive.
Hope the above helps.