Reading #39

Yeah it sucks. That’s all I have to say.

Completly agree. How am I possibly going to remember/memorize every single profit, max profit, max loss & breakeven price for all those option strategies. Suggestions from anyone on easy the pain on this one?

The input I heard on this was you’d be stupid to memorize all the breakevens and everything else, spend the time elsewhere. Definitely know the payoff curves though, so that provided with a situation (rising volatility) you could pick an appropriate strategy. Who knows though, this could be the year an entire item set is devoted to calculating breakevens on bull spreads…

thats bull sh!t :slight_smile:

I’m doing it now. I try and think through and understand each option strategy and the max profits or losses by considering each option in it. I can do this, but I won’t be able to easily remember what each strategy is composed exactly.

I was dozing off @ Barnes and Noble last week trying get through this portion. I almost forgot about put-call parity from the last level! At the current rate, I’'m not sure I have enough time to re-read this stuff…

Come on, guys! This section is really not that bad. All those equation and charts are cetainly intimidating. However, basical concept is only===>buy low and sell high. Just ask yourself, what happen if stock goes to 0 (max loss for call, max gain for put), and what happen if stock goes to infinity (max gain for call, max loss for put). All those combination strategy only reduce to one thing: we are all cheap. If we buy something, (long a call or long a put), we want to pay less, how? We sell a contract to finance the buy (sell put, sell call). However, there is no free lunch since selling contract limits upside potential.

It’s not “hard” its’ annoying! In the real world that’s what you have models for :slight_smile: and noo not the $5000 dollar types.

bigwilly Wrote: ------------------------------------------------------- > It’s not “hard” its’ annoying! In the real world > that’s what you have models for :slight_smile: and noo not > the $5000 dollar types. Can’t agree with you more.

Anyone else try to memorize those max profit, b-even equations? I was looking at them during the review, while i get the major concepts, memorizing the equations does seem like the best use of time.

haha…too funny that I initially hated this section, but now I look back and dont see too much stress over it :slight_smile:

memorize all those formulas is the best way… to mess up in the exam just remember the following: - value = movement in your favour from strike (or cero if negative) - profit = value minust net premims paid - max profit = max movement in your favour (up to any limit, if any) minus net premiums paid - max loss (assuming you are long those money spreads) = net premiums paid - breakeven = movement from your “good” strike that compensates net premium paid the only tricky things we can face here are: - substract or not net premium paid, depending on cfa asking for “value at expiry” (don´t substract premiums) or “p&l at expiry” (substact premiums) - include the cost and final value of the stock you buy when doing the numbers for stock + collar (instead of doing calculations of the collar only) - having a box spread (not complicated, but a little tricky, this one you can memorize)

Those are some good tips hala. Seems like this stuff is very testable! Any tips for reading 38? i guess u have to remember to use only the profit from the future and not the total value when calculating effective beta.

this thread just scared the crap out of me …:frowning: