Option strategies: (bull, bear, butterfly, straddle, box, collar)

passme

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Vt, profit, max profit, max loss, break even formulas
Any short cut other than pure memorization?
Thoughts?
 
I did a search on the topic. There has been at least one topic about this every year.
Understand the graphs of each really help memorizing the forumlas.
I just dont know if I should spend hours getting over this reading right now or move on and come back when it is near the exam time…
 
Go make each of the option trades on an exchange, if it’s your own money going to work, I guarantee you will learn them and remember.
 
Go make each of the option trades on an exchange, if it’s your own money going to work, I guarantee you will learn them and remember.
 
I’ll throw in a few:
1. Put-call parity mnemonic
COX = POSO
i.e. Call at time 0 + bond face X = Put at time 0 + underlying
For European options, divide X by (1+i)^t
Replace 0 with t for all future durations
Shuffle terms in equation to derive synthetic positions and signs show whether long or short, e.g. C = P + S - X means long call has same payoff as combo of long put, long underlying, and short bond
2. Use the basic put/call diagrams to map out the more complicated strategies
E.g. long butterfly
Start from left hand side, the line segments from 0 to X1 and just before X2 form a simple long call @ X1. If I’m short 1 call @ X2, the payoff turns into a horizontal line to the right of X2; I short a SECOND call @X2, the payoff now slopes down and to the right. When I hit X3, I need a long call at X3 to get back to a horizontal line. End result: long 1 call @ X1, short 2 calls @ X2, long 1 call @x3
Now start from the right hand side. The line segments from infinity to X3 and just before X2 form a simple long put @X3. If I’m short 1 put @X2, the payoff turns into a horizontal line to the left of X2; I short a SECOND put @X2, the payoff now slopes down and to the left. When I hit X1, I need a long put @X1 to get back to a horizontal line. End result: long 1 put @X1, short 2 puts @X2 , long 1 put @X3
3. For any option strategy, to go from long to short (and vice versa), put a hypothetical mirror along the y-axis of the payoff graph and reflect the image.
I hope this helps!
 
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