I am sure the answer is that I need to suck it up and learn the material because the LOS says so, but I figured I’d ask those who may have already had one run-through to see if they could shed any light on this… In book 4 (alt invest / risk management /deriv) of Schweser, when you get the the cluster$!*@ of option payoffs, with profit, max gain, max loss, breakeven, etc, there is a blue box that says not to bother memorizing the formula’s for the equations i just mentioned, basically says it takes too much time and you will probably have few if any questions on it… but then it goes on to grill you on quantitative questions for the next 20 pages using those exact formulas it said to disregard. I can probably memorize all the profit equations, but it’s just too much time to do everything (breakeven, max profit, max loss, etc.), anybody have any idea what time of representation this would have on the exam? I understand when you would want to use each strategy, and I get the concepts, I just can’t remember all the stupid formulas… there are like 10 strategies, with 4 possible formulas, so 40 total, just for this one section. Obnoxious… I put this shit in bloomberg and have it calculate the fkn payoff anyhow.
calm down. You don’t need to memorize the equations, just know the concepts and you will be able to derive anything you need. Last year the EOCs in the CFA book were really helpful. These were tested last year as well and they are easy points if you do some practice, but your time is better spent practicing rather than memorizing for sure.
Chi, true about the conceptual understanding and derivation of necessary formulas, after a second pass I found it more palatable. Some days I just can’t seem to understand anything, other days everything is easy, guess I read that on a “bad” day. However I still have trouble deriving break-even calculations even with conceptual understanding (at least for more complicated strategies eg butterfly spread), so I think I’m just gonna roll the dice on that one. Rather than memorize max profit/loss, I just re-solve the formula at increments above and below the strike and take notice when the gain and losses seem to stagnate at the same level. Less time efficient, yes, but far easier than memorizing max profit/loss formulas for 10 strategies.
Now that I think about it, I’m pretty sure I just ignored the formulas as I found them too confusing. Instead just reason through the value of each of the underlying position, your premiums paid, etc. and you should be good.
Everyone learns and recalls in a different manner, but I will at least offer that drawing pictures really helps me. Drawing the option hockey stick with the strike price at the inflection point on a graph is a nice way to conceptualize breakeven and the math tends to easily flow from there. Again, everyone is different, but I would have a miserable time if I could only rely recalling the formulas.
Thats funny Forward, for me it’s the opposite. I would have a far better shot at memorizing the fomulas rather than the graphs, if they ask me to draw a diagram I’m just going to draw a butterfly, or a box with a UPS label, or just some stick figures or something.