Is there a link to a one or two-page pdf with the option payoff diagrams and the associated break-evens, costs, max loss/profits associated with each strategy?
Options are an easy read in the CFA text , just go thru them slowly , it’ll be clear.
I recommend memorizing 3 pieces of information (the bare minimum you logically need to know anyway), and from that deriving the other aspects if needed.
You should memorize the 1) Name of all 8 strategies, 2) the positions needed for it, and 3) an idea of what it looks like.
To figure out the payoff from a given strategy, you build it with these pieces of information:
Underlying = S_t Call = [S\_t - X]^+
Put = [X - S_t]^+
If you’re long one of these three, it is positive; if it’s short, put a negative sign in front.
To figure out the Profit function for each, you simply take the Payoff determined above, and then subtract the cost of establishing the position, which is c, p, or S for each position, with the proper sign before based on whether you are long or short. You can group the terms how you like, but you ought to be subtracting long positions and adding shorts to your profit function.
To determine max or min profit, have an idea of what the profit function looks like, and then investigate that area of the profit function (the highest or lowest part, ha). All of the [S\_t - X]^+s will simplify either to 0 or to (S_t - X), and then usually many terms cancel out.
Lastly, to figure out the breakeven point, you set the profit function equal to 0, and then solve for S_t, but after using your visual of the function to know where it crosses 0. This way some of the options will simplify to 0, and some will remain (S_t - X) or (X - S_t) etc., and you can solve for S_t.
I’d give more examples but I’m busy at work. This really is the easiest way to solve any of these problems, and with slight practice and minimal memorization, you can get any one of these correct.
And if you didn’t realize this, [X - S_t]^+ means max(0, X - S_t)