Is there any formulaic logic behind Max Profit, Max Loss and B/E for option strategies rather than just memorizing them? For example, Profit can be easily figured out by using Max (0, St-X)-C for a call option, etc. Thanks
I would highly recommend drawing payoff profile. It works great for simple as well as complex option positions.
maratikus, thanks. I just went through all option strategies. Drawing the payoff definitely helped with Bull Call, Bear Call and Bear Put. I can’t figure out why: * 2Xm in B/E for butterfly * St-X for Max profit for Long Straddle * payoffs for Collar based on drawing Again, many thanks for the tip!