I'm taking this to the exam. I have no option. Pun intended.

CFA Level III
#1

1 Like
#2

The Schweser technique works well and is intuitive.

  1. Draw the diagram for strategy

  2. Calc initial investment in the options. Gives you the BV

  3. Calculate EV of strategy at some value, or given value

  4. Examine P/L = EV - BV

  5. From the diagram and all those calculations you can calc, max prof, max loss, BE (Use max loss or max prof and add the profit/loss from each)

#3

I draw as 5 years old so I rather use those fancy formulas:) I developed an approach by simulating each scenario very quickly. The only requirement for such strategy is to know very well each position holdings and is recommended to know an intention of spread holder.

#4

Don’t you still have to label your diagrams and then do the additions deductions etc? You are still resorting to formulas.

#5

If you actually figure out what is happening in the diagrams you don’t need formulas. Not saying you don’t have to know anything, but just easier than a bunch of formulas.

Knowing the basics for Long Calls/Puts and Short Calls/Puts can get you pretty far

#6

OK here’s a random question. “Given the info in Exhibit 1 calculate the profit from Strategy 2 (it’s a butterfly spread)”. If you can’t recall the exact formula answering this in 3 minutes is unreal in my opinion.

#7

Yeah it would be a time crunch. To each their own. I just know I cant memorize everything and if I can just remember what the diagram looks like I can figure everything else out that way.