Derivative Strategies Explained ( Using basic Geometry): for CFA , CFA Level 1, CFA Level 2, CFA Level 3

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This channel is targeted at candidates for the CFA™ (Chartered Financial Analyst) Level 2 2020 exam.

1. Covered Call: Long stock, sell call. Breakeven, maximum profit, maximum loss
Covered call strategy is used when you have an existing long position, and don't think the price can go any higher or you would like to reduce overall cost.

2. Protective Put: Long Stock, buy a put. Breakeven, maximum profit, maximum loss
When you have a long stock position and think there is a chance for the stock to pullback, therefore to reduce the risk, you can take a long put position.

3. Collar: Long Stock, Sell call, buy put: Breakeven, maximum profit, maximum loss
When you have an existing stock position, but are expecting price to go down. Therefore, you buy a put at a lower strike price and to offset the premium you have to pay for buying a put, you sell a higher strike call to offset the premium

4. Straddle: Long call, long put
When you are not sure about the direction but know there is a possibility of big up or down move. Hence, you can take a long call and long put position.