is everyone memorizing the formulas for value at expiration, profit, max loss, max gain and breakeven for these option strategies? Stalla (Hetherington) suggested just knowing these for covered calls and protective puts and to only know the ‘basics’ for the others… any opinions on this are appreciated.
This is typically the type of subject where understanding can replace learning pretty easily. I would suggest to be at ease with the rationale for each of them, best way to be safe. Learning the formulas could actually lead to mistakes that understanding could avoid
I recommend knowing the forumla for profit. The max loss/ max profit / breakeven are less important. That said, if you know the profit formula you can practically infer the other three …
All you need to know is graphs and then substitute numbers to find max profit, breakeven and so forth. Assume stock price goes to zero, assume stock price goes to 100 and calculate from there. Pretty easy stuff, but easy to make mistakes.
the EOC questions are a good resource for learning these quickly. it helps me when i draw the graph too, makes it much easier
You can make an excel sheet with option strategies as rows and max gain, max loss, breakeven etc. as columns
bull spread is buy lower price and sell higher price buterfly is buy two on each side and sell two in the middle, straddle is to buy a call and put at the same time or sell
rivercharlesy Wrote: ------------------------------------------------------- > bull spread is buy lower price and sell higher > price > buterfly is buy two on each side and sell two in > the middle, > straddle is to buy a call and put at the same time > or sell “bull spread is buy lower price and sell higher price”. This applies for bull call spread and bull put spread. Worth to take a note.