Igor

Both the call and put options in a fence option have the same expiration with the call option forming the ceiling and the put option forming the floor of the trade, hence the name "fence" option because both call and put options fence the trade in.

Far options attract larger premiums because they have longer expiry times, which gives them more time to expire in the money.

The extrinsic value of an asset declines as its date of expiration draws closer. It is the value of an asset that is assigned to it by external determinants.

Expiration times give an indication as to the time of the day that the option must be exercised when the due date has arrived.

All options and binary options trades have an expiration. The maximum time allowed for a trade in the options market is 3 months, after which that trade must be compulsorily exercised. Traders can set their own expiration times from one day to the maximum of three months. At other times, the trades have pre-set expiration times. An example is the weekly option which lasts 8 days.

Most options are arranged to trade with expiration months in one of these three cycles: the January cycle (January, April, July, October), the February cycle (February, May, August, November), or the March cycle (March, June, September, December).

Examples of exotic options include binary options, compound options and Asian options.

The exercise price is what decides how much a trader can make or lose in an option trade. If the difference between the exercise price and market price is much, the premium paid on the trade also increases in a corresponding manner.

For options that are traded on stocks, the exercise limit is set to 2,000 contracts or 200,000 units of the underlying stock.

Exercise backdating is a fraudulent practice often performed by executives in order to reduce the amount of capital gains taxes they have to pay as a result of exercising the stock options that they hold. Since many company executives hold stock options worth tens or even hundreds of millions of dollars, this practice can help them save a lot of money.

Option trades confer a right to the option buyer or seller to sell or buy back the option. When this is done, then we say the option has been "exercised".

Exchange traded options are a type of listed options. They are very liquid, are made up of standardized contracts, and provide quick access to prices. These ensure quick settlement of the option contract.

Evergreen options are used by publicly traded companies as a way of attracting a good management and keeping the workforce motivated beyond payments of salaries and cash bonuses. Due to the long term nature of evergreen options, they can be used to keep staff and the management team in the company workforce for a good number of years.

European options require that all trades must get to expiration before they can be exercised. They are different from American options which allow some options to be exercised before maturity.

Escrow receipts are used in transactions between two parties when there is a geographical distance between both parties and there is a need to build trust and confidence in the ability of the paying party to complete their end of the deal.

An example of equity derivatives are options and futures, because the value of all assets traded in these two markets are derived partially from the value of the assets in the parent markets.

In the binary options market, some brokers offer an early closure, allowing traders to close the trades before expiry. This usually comes at some form of price in the form of a reduced payout. Early exercise is used to lock in profits and release capital for other trades.

DVegaDtime is also one of the Greeks which are used in option pricing models as measures of implied volatility. It is the only Greek which does not have a Greek letter attached to it.

An example of downside protection is when the trader purchases an option to act as a covered call or put for a short or long position in a stock purchased in the stock market. In the spot forex market, the downside protection would be the use of a stop loss.

For the down and out option to continue to be valid, it must not touch or go below the pre-determined price level. If it does so in the life of the option, the option automatically expires worthless even if it eventually goes above the market price.

The option only kicks in if the asset price goes below a pre-determined price level set below market price at the initiation of the trade. When this happens, the trader can then exercise the stock at the barrier price. If the price does not reach the pre-determined level, the option expires worthless.

Two option pricing models are used in measuring the down transition probability. In the binomial model, the probability that an option's underlying asset declines in value over a time step may be denoted by 1-Qu. In the trinomial model, the down transition probability is equal to the probability of an upward transition or an equal transition over the next time step not happening.

The trade technique is to set price barriers above the recent lows and below the recent highs so that there is a chance for a volatile asset to touch any one of these barriers at least twice before the trade expires.

This is a form of boundary option in which the trader can benefit from the asset staying range-bound over a period of time. The boundaries are then set outside of the highs and lows so that a double test of these highs and lows will not touch the price barrier.

This is the equivalent of the boundary (in/out) trade in binary options where the trader profits from an OUT option if the asset touches any of the two boundaries, or from the IN option if the asset stays within the range without touching any of the price boundaries.