Derivatives

[archived_user]

Hi all,
just finished the reading about derivatives. Do we really need to know all these formulas?
It’s a huge amount and also the formulas for the different option strategies are not easy to remember or to derive (almost impossible to derive during the exam).
Anyone else who already read this reading?

 

[archived_user]

Try to understand fundamentals. A Put-Call parity and protective put and covered call positions. Then remember by which position is made each spread and what is the position holder’s intention. Such you will be able to calculate position value and profit. Then for max. profit, loss and breakeven you may play by simulation of extreme scenarios (eg. zero value of underlying, or some extreme positive value). There are not extreme gains/losses for hedged positions because there are limited upwards and/or downwards price movements. I am still practicing this game and is my favorite part of L3 curriculum.

 

[archived_user]

Yes but apart of protective put and covered call there are all the put/call bear/bull spreads, collar, straddle, calendar spreads,…
Are you studying this things at level 3? So strange it seems to be overlapping material between level 2 and level 3.
Then for derivatives there are all the formulas about futures (continuously and discrete compounded), forwards, swaps, etc. A lot of material for derivatives I have to say.

 

[archived_user]

I cannot remember that option spreads were part of L2 curriculum last year. Maybe curriculum changed.
Yes, this is not easy, you have to spend many hours on practicing if you plan to pass this exam.

 

[archived_user]

I failed level 2 last june band 10 and I studied less than 200 hours, I was really unfortunate since there where people with score matrix worst than mine but they passed. I failed probably because I performed poor on quant which is really strange since it has always been my strongest area (I am an aerospace engineer…) don’t know what happened that day, maybe I did something wrong by marking the correct answers.
Back to my question, I just started to read derivatives and I noticed the curriculum changed a lot in this area, and derivatives are really tough this year compared to june 2016! This is the reason why I was asking for somebody’s else opinion.

 

[archived_user]

I’ve written a number of articles on derivatives that may be of some help to you; you can find them all here: https://financialexamhelp123.com/level-ii-derivatives/.
(Full disclosure: First, I haven’t gone through the changes in the 2017 curriculum, so I may be missing some things there; second, there is a charge to read the articles on my website. You can see a sample Derivatives article (Pricing FRAs) here: https://www.financialexamhelp123.com/pricing-fras/.)

 

[archived_user]

Thank you S2000magician, unfortunately on level 2 there is a lot of material about options (strategies like bear/bull put/call, straddle,…) which aren’t difficult, but we should be able to calculate max profit, max gain, max loss, cost, value, value at exp,… for all these strategies. Memorizing them isn’t possible (at least to me) and derive it during the exam it sounds to much.

 

[archived_user]

Those used to be Level III topics, and I wrote a number of articles on them. I’ll add those articles to the Level II list as well.
As far as memorizing them goes, I’d concentrate exclusively on the shape of the payoff for each. If you know that the payoff on a bull spread looks like _/ ¯ (and you know the payoff diagrams for all four single-option positions), it’s easy to construct a bull spread on the fly. Seriously, it isn’t nearly as taxing on the brain as most people assume.