The bell curve is a graphical depiction of the probability of potential outcomes for a variable. Statistics have become so much a part of popular culture that most investors, even those without a mathematical background, have heard of the concept of a probability distribution, the most common and popular of which is the normal distribution, or "bell curve." The payoff diagram shows how the value of an option position varies with the price of the underlying stock. A payoff diagram is generated by plotting the value of an option position at expiration versus the stock price at expiration.
Most introductory option education is based around the understanding of this depiction. The payoff diagram is the graphical option analysis I most commonly see, and it's also the simplest. I am forever struggling to integrate all the data I can into one framework, so I can put my visual processor to work on it. Because this is the way I think about options, and I've found this technique to resonate so well with other investors, I'll graphically present option data whenever possible. To me, the reams of option data are near-unintelligible without the intuition brought by a graphical analysis of multiple option data points. Visualizing information, one of Morningstar's core strengths and missions, is particularly important when it comes to options. Option investing involves distilling oceans of data to gain insights about trends and valuation, and the human brain is far better at digesting volumes of information graphically than one piece at a time.
0 kommentar(er)
