Hey guys, couple of queries on options:

  1. do we need to learn the Black Scholes Merton formula and Black formula?

  2. put call parity with options on forwards – can anyone please try to explain this to me or at least list the ‘takeaways’ we need for the exam. I’ve read it over and over in schweser and the CFA book, still a bit confused.

Thanks very much.

Im having trouble with these areas of options too…

Can someone chime in…!

In the Schweser notes, they stated the material being tested on the BSM formular is highly unlikely, so I won’t put any time to even memorize the formula. However, I do believe knowing the correlations between the inputs and the outputs of the formula (eg. rates go up, call price go up) and the underlying assumptions of the model are very important.

You should memorize the Put-Call Parity formula. They can ask that. It’s also the easiest way to answer the qualitative questions. For instance, if they ask what happens if the Put price changes, just look at the formula and see what happens.

You don’t need to memorize the Black-Scholes formula. However, as the other guy said, you need to understand the inputs and how they affect option prices.