Abstract
This paper presents a simple graphic method of deriving profit lines for complex option strategies which obviates the need for numerical calculations used in finance textbooks. Having mastered the underlying profit lines associated with simple option and stock investments, students can derive profit lines for complex strategies by following two simple graphic addition rules proposed in this paper. While these rules appear in elementary math books, most finance textbooks either ignore them completely, or apply them only implicitly without explaining their derivation. The result is that the teaching of option profit lines tends to become an unnecessarily arduous exercise.
Recommended Citation
Shirvani, Hassan and Wilbratte, Barry
(2003)
"A Pedagogical Note on the Derivation of Option Profit Lines,"
Journal of Economics and Finance Education: Vol. 2:
Iss.
2, Article 3.
Available at:
https://scholarship.rollins.edu/jefe/vol2/iss2/3
