Does anyone have a simple template for calculating the payoffs, breakeven prices etc. for the option strategies? There’s some way to do it by breaking down the cash flows. Thanks
Gonna use the weekend to try and fill this crap into my head…wish me luck
wishing you luck … hope this thing gets in there and stays till exam day (at the minimum) … i learnt them all and write it out every day and now, i seem to understand the concepts behind some of the graphs. working on the ones remaining … hope it works for you as well.
That’s a great idea l3…gonna try and write them out everyday too… will be 20 mins well spent…
shameless self-advertising: I look at these graphs whenever I have a free minute and internet access: http://www.analystwiki.com/wiki/index.php/Risk_Management_Applications_of_Option_Strategies,_by_Don_M._Chance,_CFA
If you can draw the payoff diagram, then its easy to calculate breakeven point, max profit, max loss etc. Break even for example: Draw the payoff diagram see where the price would be if the position were to breakeven determine which options pay out and which expire set the equation = 0
The graphs and formulas confuse me so I ignore them. I just reason through the initial cash flows (net of purchases and sales from each option) write that down, then write down the payoff for each position, net them all and you are done. I would also highly recommend doing the CFAI EOCs for these.
Thanks Chi Paul, I did all the CFAI EOC’s last night… were helpful in seeing how to get the B/E price etc. I took a NY-based review class last year (2nd timer obviously) where they had a method for diagramming the cash flows… I guess similar to payoff diagram that Kerry1 describes. Will see if I can find my notebook - I think I tossed it last August, in frustration : ) Last year I tried rote memorization, but then they didn’t even ask any option strategies last year… i.e. probably on the June 5th test.