NakedPuts2011

the amount of questions here makes me dizzy. here's one. i am too lazy to open up the books now and go past that, but if you're jamming out derivs this early, you're going to be just fine buddy.

P472, Q1, for bull spread, why we buy call with small execise price and sell call with high exercise price? call with small exercise price is expensive compares with call of high exercise price, why we buy high, sell low?

for a "bull" spread, you want the stock to go up and you'll profit when it does. call side you buy the lower strike- say you buy a $50 call for $3 when the stock is at $52. you write a $55 call for 75 cents to offset some of the cost of buying the in the money more expensive one. do your profit out- you'll make the most money when the stock goes up, hence "bull" spread. but it's a spread because you are capping your gains by writing that call- there is a max you can make as opposed to just buying a call outright. a bear spread you go the other way, you'd get a net credit by doing it, but you're going to profit also when the stock goes down.

ok fine, I'll answer 2-
P421, for option for butterfly, box spread, do we need to remember formula for max and breakeven point, I spend more than 15 minutes to work out it after close the book, sometimes make error, I use profit formula, then discuss different range of S, finally I got max. gain/loss/breakeven, I think in exam i DON'T HAVE Time to derive, how about you, do you rot the formula?

you don't really have to memorize any of the formulas if you don't want to in the profit/loss derivs section, whatever works for you. i just lay options out there and see where it makes or loses $$. this section sort of seems painful to start but once you get it, you'll be begging for these exam day. we got a q last year on it, so who knows if it'll show up again. crap, i should've passed last year, bad me.