options help - quick cheat sheet needed !

[shahravi123]

Loss to put writer = x-s (+ premium)
Gain to put writer =
Loss to call writer =
Gain to call writer =

Loss to put buyer
Gain to put buyer
Loss to call buyer
Gain to call buyer

Breakeven on Covered call = S- p
Breakeven on Protective Put =


2. An investor purchases a stock at $60 and at the same time, sells a 3-month call on the stock. The short call has a strike price of $65 and a premium of $3.60. The risk-free rate is 4%. The breakeven underlying stock price at expiration is closest to:
A. $55.85.
B. $56.40.
C. $60.80.
D. $61.40. (please show calculation)

 

[EquityHolder]

B.

Total cost to the investor is stock (-60) plus short call (+3.6) = 56.4

If the price go below 56.4, the investor will be at loss.

In this case, short call creates a cap to maximum gain from one side, and provides some cash flow (premium) from other.

 

[shahravi123]

oh sorry, I have the formula for that question...

Breakeven on Covered call = S- p = 60 -3.60 = 56.4

 

[mcf]

I honestly think the best way is to drill these until you get the conept. Formulas didn't help me at all... i have to do them intuitively. Only one i memorized was the parity formula.

 

[choate05]

formula's don't help me much either! unless i look at the formula, and realize what is going on inside them, and then like you said i can quickly know what to calculate, those formula's don't do crap for me. i'm kind of worried but i don't see how people could memorize all kinds of different formulas..anybody else?

 

[daj224]

B

S - P is beven on CCalls

memorized the rules and put call parity and that is getting me by 70% of all option questions,