- Criteria for Successful Investing
- Risk Profile Charts
- The Definition of an Option
- The Valuation of Options
- Intrinsic and Time Value for Calls
- Intrinsic and Time Value for Puts
- The Seven Factors that Influence an Option's Premium
- Risk Profile Charts for Call Options
- Risk Profile Charts for Put Options
- Memory Tips for Long and Short Calls and Puts
- Basic Risk Profiles Summary
- Notation Standard for the Examples
- Chapter 1 Major Learning Points
Basic Risk Profiles Summary
These are the four charts you need to remember. If you just remember the long call option risk profile, you should be able to construct the other three basic option positions. When you are comfortable with these and the logic behind them, you’ll be ready to look at spreads and combinations with ease.
The Four Basic Risk Profiles for Options
The four basic risk profiles
Here are the four basic risk profiles. Notice how each one is a mirror of another. See if you can deduce which one is which, and I’ll explain them all on the next page.
The four basic risk profiles explained
See how each strategy is the opposite of each of the others, both from a logical and a visual point of view. Once you’re familiar with these four pictures, you can combine them to create new strategies.