options - show your calculations (formulas)

[sachin_patel]

Let’s assume that they are asking for price at which max profit occurs for a butterfly spread.
Can I say that max profit occurs when the price moves to the strike price of two short options? and then state the price? or do I need to show the formula for it?

 

[sachin_patel]

This is just an example. I am asking this question regards to break even price, max loss price etc as well.
This is how I have memorized instead of trying to memorize formulas.. Let me know what you think.
Thanks,

 

[DJS05101985]

I think you just plug in numbers and calculate the profit - lets say you’re short 2 at $10, long 1 at $5 and 1 at $15. You could show
Profit = ($10-$5) - 2*($10-$10) + $0 - Premium paid
And then maybe follow up with a sentence, ” for every move below $10 the value of the long $5 option diminishes and for every move above $10 the short calls appreciate by a total of 2x the long $5 call. For prices above $15, the long calls and short calls cancel. Therefore, max profit is at the price of the short calls.”

 

[sachin_patel]

thanks

 

[daharmattan1]

Yes definitely just plug and play. PS this would almost 100% come up in a multiple choice context anyway so showing your work isn’t going to matter much…