Option payoff etc

[Banjee]

Hi guys. I’m really struggling with the option formulae. I know I should do it via the graphs, which I can just about remember. Does anyone have any straighforward tips for remembering (working out) max/min profit and b/e? Any help would be greatly appreciated.

 

[passme]

find a pattern, start from maximum loss formula.
from that, you can pretty much derive most of the formulas.

 

[jahuntley79]

I’m with you. That is one of my weak areas and I am not sure if the time it will take to nail it is worth it from a cost/benefit standpoint (i.e time not spent on IPS..etc.).

 

[Spanishesk]

Easiest way to learn this stuff is to take it on eposition at a time. So given a strategy, know what the strategy is, and analyze each leg of the strategy on its own. Once you do that, you can combine them all. Do you have a specific question/type of problem to post?

 

[GrooveCoverage]

My eguidebook to options:-
1) Know the strategy. What options the strategy use. Have a photograpihc memory of the payoff diagram.
2) Echoing Spanish, tackle one financial instruments at a time (i.e. stocks, call, put)
3) Remember the payoff formula;

• long call = +Max(0 , S - X)
• short call = - (Max 0, S - X)
• long put = + Max(0 , X - S)
• short put = - (Max (0, X - S)
• and dont forget the premiums, pay or receive.

Hope the above helps.