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A Few Notes...
A few assumptions were necessary to compile this strategy guide. The underlying stock was given a volatility of 30%, and an initial stock price of 50, unless noted. Furthermore, the option positions are established with 0.25 years remaining (3 months), unless stated otherwise. Finally, we take a risk free interest rate (derived from the yield on treasury notes) of 5.45%. None of these assumptions affect the basic characteristics of the positions described.

The pricing of options in this guide is in accordance with the accepted Black-Scholes model. Under this model future stock price probability is derived from the lognormal distribution shown below.

To equip you to read the strategy guide lets go through the first position, a call option purchase. The first line details how the position is established, in this case, a long call option bought at a strike of 50. Below this are three graphs that show the strategy value at expiration, the profit/loss of the total position at several intervals from establishment to expiration, and the theta, or time loss of the position, again at selected intervals.

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