Do you think the CFAI wants us to memorize what bull call, butterfly etc. option strategy is or will they simply say you are long a call option with a strike of X1, short to call options at strike X2 and long a call option with strike X3 (therefore constructing a long butterfly strategy for us without telling us?) I can’t remember how they did it on past exams…
What do the LOS’s say? Do they say you need to know how to construct a bull call, butterfly, etc?
LOS: Determine and interpret the value at expiration, profit, maximum profit, maximum loss, breakeven underlying price at expiration, and general shape of the graph for the major option strategies (bull spread, bear spread, butterfly spread, collar, straddle, box spread). What’s your take on that?
It’s hard to even frame the question without easier using serious jargon or telling you something like “entered a [blank] by buying [option with some characteristics] and selling [a different option of some characteristic]”. They will probably not give you a trade and ask you to identify whether it’s a straddle or a butterfly or whatever.
I would think that the “name” of the option strategy is less important in this LOS. I would focuse on the energy on when a certain trade or combination trade is made (long, short, put, call), what is the profit potential, downside loss and breakeven price, and what is this strategy is trying to capture?
my advice, don’t get intimidated… give it a shot and I bet you’ll have it down in approximately 15 minutes. You already know what a fly is so that’s probably the hardest one. If it gets tough, just think about what the payoff graph looks like and it will make things a tad easier…
I never trust those names anyway. If someone comes to me and says “I just put on a condor spread”, the probability that they actually put on something that might be called a condor spread is like 80%. Thus, I don’t care and just ask what trades they actually made.
JoeyDVivre Wrote: ------------------------------------------------------- > I never trust those names anyway. If someone > comes to me and says “I just put on a condor > spread”, the probability that they actually put on > something that might be called a condor spread is > like 80%. Thus, I don’t care and just ask what > trades they actually made. what else besides a condor would you call a condor? some weird ratio? (In other words, you guys are letting the names intimidate you. This stuff really isn’t that bad so just do it for one more level and then forget about it…
Also great to see they include the Box spread… Hopefully next year they’ll make it a point to add the Cox-Box model and the Weiner process to the curriculum…
ahahah Wrote: ------------------------------------------------------- > JoeyDVivre Wrote: > -------------------------------------------------- > ----- > > I never trust those names anyway. If someone > > comes to me and says “I just put on a condor > > spread”, the probability that they actually put > on > > something that might be called a condor spread > is > > like 80%. Thus, I don’t care and just ask what > > trades they actually made. > > > what else besides a condor would you call a > condor? some weird ratio? > Typically something that has unlimited risk (like maybe a condor spread with one gigantic limb sticking out of it)…