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Covered Call, Protective Put

any tricks for remembering payoff/breakeven for protective put and covered call?

Well here's a trick to remember Put-Call Parity.

Think of this phrase: "Sip a coke".

SiP a CokE


Stock + Put = Call + Bond with Face Value of Exercise Price.

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Slutty
+
Prostitutes
=
Blow
+
C@ck

__________

"good personality ... or he was known as Lt. Mandingo during his army days."

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Okay, seriously.

First, think of a protective put in its natural sense. You own the underlying and you want insurance against downside risk without forgoing upside gain. So, the right side of the equation is: Long the security, long the put. (So, P + S)

Then, a fiduciary call is what's left: Long the call (for upside benefit) and long treasury bill equal to the strike price. (So, C + X)

Hence: C + X = P + S

The X is always discounted at the risk free rate. This means that if S = X (the stock is trading at the strike price), C must be MORE than P by the risk free rate.

- Robert

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This is some great feedback...thanks guys. After nuppal's post, i will never forget put-call parity again!!!!

My main concern is remembering the following:

covered call: max gain= x - s + premium, max loss = s - premium paid, breakeven= s - premium paid

protective put: max gain unlimited, max loss s-x+premium paid, breakeven = s + premium

It is weird...I cannot remember these when they come up in questions. i fully understand the individual option payouts, but when it comes to combining them, I blank. I'll spend 5 minutes drawing arrows and thinking this stuff out, but wind up reversing a sign or something. Some of them make sense intuitively, but others are just pissing me off.

Any good acronyms or logic behind thinking these out would be greatly appreciated.

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It's not covered call in the equation, it's fiduciary call they are different things.

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i understand that...covered call is long stock, long call. fiduciary call is long call, long t-bill.

I am asking about covered call. max gain, max loss, breakeven. same for protective put.

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covered call is long stock and short call

fiduciary call is long call and long risk free investment

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