Option Strategies - advice needed

CFA Level III Derivatives
#1

So what are people’s advice on remembering these? The strategies themselves in the beginning aren’t bad, but once they mix up the long and short and put and call- it can get quite confusing.

Covered Call

Protective Put

Bull Call Spread

Bull Put Spread

Bear Call Spread

Bear Put Spread

Long Butterfly Spread (calls)

Short Butterfly Spread (puts)

Long Butterfly Spread (puts)

Short Butterfly Spread (calls)

Box Spread

Collar (Zero Cost)

Money Spread

Time Spread

Long Straddle

Short Straddle

Long Strangle

Short Strangle

Strip

Strap

Anything else I missed?

#2

If you try and remember the payoff formulas for each you will fail. Just remember how each is constructed; from there being able to calculate the payoffs of each individual position is easy. Being able to draw the payoff diagram helps as well to conceptualize everything.

#3

u missed this:

Risk reversal

Seagull spread

#4

kjames is right, if you know how basic long/short puts and calls work and you know how each strategy is constructed you can piece together payoffs, max loss, max, profit, breakeven etc

i modeled them all in excel (including payoff graphs) which helped them stick as well

#5

I would try to remember only the shapes. You can easily construct any shape on the fly if you know the payoffs of long/short puts/calls.

#6

Smart idea!

You’ll remember the shapes of the graphs more easily than you will the constituent options, and you can always reconstruct the constituent options from the shapes.

#7

Don’t forget Knock-out option!

#8

Don’t forget R19

  • Risk reversal or collar

  • Put spread

  • Seagull spread

  • Knock-in/out option

  • Binary or digital options