TRADING STRATEGIES

C

Call price (premium)

P

Put price (premium)

S₀

Current stock price

Sₜ

Stock price at expiration

K

Strike (exercise) price

T

Time to expiration

Nᴄ

of calls

Nᴘ

of puts

Nₛ

of shares of stock

Payoff

Value at expiration

Profit

Payoff - premium paid + premium received

Long Call (Buy Call) Profit Formula

𝑃 = max(0, 𝑆ₜ − 𝐾) − 𝐶

Max profit (Long Call)

∞

Max loss (Long Call)

-C

Breakeven (Long Call)

𝑆ₜ∗ = 𝐾 + 𝐶

Short Call (Sell Call) Profit Formula

𝑃 = 𝐶 − max(0, 𝑆ₜ − 𝐾)

Max profit (Short Call)

+C

Max loss (Short Call)

∞

Breakeven (Short Call)

𝑆ₜ∗ = 𝐾 + 𝐶

Long Put (Buy Put) Profit Formula

𝑃 = max(0, 𝐾 − 𝑆ₜ) − 𝑃

Max profit (Long Put)

K - P

Max loss (Long Put)

-P

Breakeven (Long Put)

𝑆ₜ∗ = 𝐾 − 𝑃

Short Put (Sell Put) Profit Formula

𝑃 = 𝑃 − max(0, 𝐾 − 𝑆ₜ)

Max profit (Short Put)

+P

Max loss (Short Put)

-K + P

Breakeven (Short Put)

𝑆ₜ∗ = 𝐾 − 𝑃

Long Stock Profit Formula

𝑃 = 𝑆ₜ − 𝑆₀

Max profit (Long Stock)

∞

Max loss (Long Stock)

-S₀

Short Stock Profit Formula

𝑃 = 𝑆₀ − 𝑆ₜ

Max profit (Short Stock)

S₀

Max loss (Short Stock)

∞

Covered Call Max profit

K - S₀ + C

Protective Put Max loss

K - S₀ - P

Put-Call Parity

𝐶 − 𝑃 = 𝑆₀ − 𝐾𝑒^{−𝑟𝑇}

Synthetic Put Formula

𝑃 = 𝐶 + 𝐾𝑒^{−𝑟𝑇} − 𝑆₀

Breakeven (Covered Call)

𝑆ₜ∗ = 𝑆₀ − 𝐶

Breakeven (Protective Put)

𝑆ₜ∗ = 𝑆₀ + 𝑃