Calculating P&L for Multi-Leg Options Positions
Chapters in this video
- 0:00 Why multi-leg options math feels like a nightmare
- 1:33 Setting up the T-chart: cash in vs cash out
- 2:11 Exam trap: exercising a long call is cash out
- 3:00 Bull call spread: max loss, max gain, and breakeven
- 5:23 Long straddle: max loss at the strike
- 6:43 Long straddle: two breakevens, upside and downside
- 7:23 Rapid-fire exam recap
What this video covers
- How the cash-flow tracking (T-chart) method organizes premiums and stock movement into cash in versus cash out
- Why exercising a long call is a cash-out event (you are buying stock at the strike), not a cash-in event
- How to compute max gain, max loss, and breakeven on a bull call spread using net debit
- Why max loss on any debit spread equals the net premium paid
- How to compute both breakeven points on a long straddle: strike plus total premium for the upside, strike minus total premium for the downside
- Why max loss on a long straddle happens when the stock closes exactly at the strike
- Why assignment and exercise produce the same cash-flow direction: buying stock is cash out, selling stock is cash in, regardless of which side you were on
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