Anyone find that the derivatives strategies chapter is really difficult to memorize all the formulas for breakeven, max loss, max gain - particularly for bull spreads, bear spreads, collars? Anyone know of an easy way to understand the intuition with all these formulas?
Dont remember the formula… Understand the concepts.
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Draw a vertical line on a piece of paper and at the top put a horizontal line through it (like a T)
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Let the left side be cash in (premiums received, amount from stock sold)
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Let the right side be cash out (premiums paid, amount from stock purchased)
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Add anything on the left and subtract anything on the right given the scenario
Actually, I have the same issue. Some of formulas for option strategies are obvious, and some not so obvious (like breakeven points). Looking for a system / hints how to reproduce them during the exam. I don’t want to memorize them as well.
I suggest that you learn to draw the payoff pictures for each strategy. From those, it’s easy to get the maximum profit, maximum loss, breakeven, and profit/loss at a given underlying price.
I would never try to memorize all of the silly formulae. I don’t have enough functioning neurons.