Profit Charts and Option Strategies
Profit Charts
According to Weber (2008) the introduction of profit charts circa 1870 helped clarify the nature of forward, futures and options. They simplified the explanation of combinations and helped elucidate derivative portfolios that previously had been explained legalistically or with monotonous numerical examples. Weber (2008) noted that profit charts made it possible to explain a derivative contract with a single graph instead of verbose explanations and freed pamphleteers from dissecting numerically complex scenarios. "Both Bachelier (1900) and Bronzin (1908) used profit charts in their works. It is unlikely that Bachelier and Bronzin, who had studied mathematics and physics, would have turned to the analysis of option pricing if profit charts had not provided an easy way for young scientists, who lacked experience in financial markets, to learn about derivatives." The first profit charts were published by Lefèvre (1873) and Moser (1875). Some examples are provided below.
A Long Call
Weber (2008), Moser (1875), Lefèvre (1873)
A Short Call
Weber (2008), Moser (1875), Lefèvre (1873)
A Long Straddle Combination
Weber (2008), Moser (1875), Lefèvre (1873)
Synthetic Call
Weber (2008), Moser (1875), Lefèvre (1873)
Straddle and Constituents
Weber (2008), Moser (1875), Lefèvre (1873)
Noch
Weber (2008), Moser (1875), Lefèvre (1873)
Profit Chart, Option Strategies and Premia based on Black Scholes
Below, we set out the option trading strategies introduced by John C Hull. We set up payoffs in excel and Python. The synthetic option positions are explained in the playlist below.
Synthetic Pay Offs
Synthetic Long Call, Synthetic Long Put, Synthetic Short Call, Synthetic Short Put
