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Showing results for tags 'option trading'.
Found 227 results
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A trader buys a put option in order to make profit from falling prices in the options or binary options market.
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This is a strategy to make money when the asset is expected to be moderately bullish. It is also used to acquire leverage.
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This strategy is used when the asset is expected to be moderately bearish. It is a compound option and is also known as split-fee option.
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This is an option strategy that uses the differential rates of price decline. An investor who adopts this strategy has a chance of making money if the prices do not rise in the short term and thereafter, keeps on rising. Money is made on the spread differential in the premium decays
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A put is used when the trader has an expectation that the asset price will end up lower than the price at the time the trade is executed.
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A protective put is also known as a covered put, because it is a hedge strategy to protect against any losses on the ownership of the original shares of the asset in the parent market. As the original share ownership loses value, the value of the protective put rises, offsetting any losses.
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The gains or losses of privilege dealers are subject to a given set of rules and not necessarily to the same that hold for other traders. This is what makes them privileged.
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A price based option is no longer traded in today's markets and has been replaced by other forms of debt instrument trading.
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The securing company basically provides a guaranteed fixed value for the asset on the other side of a price swap deal, and this is paid for in issuance of stock if the value of the asset declines. It is not very popular among shareholders because such stock issuance leads to dilution of the sharholding.
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This is also known as the money that changes hands when an option contract is acquired. The seller of the contract receives the premium as payment, and the buyer pays the premium as a cost.
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The position limit is either set by the Commodity Futures Trading Commission or by the exchange on which the options contract is traded, and is used to prevent a situation where a few market players can unduly influence price behaviour based on the volume of their holdings.
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Pinning the strike usually occurs as a result of lots of open interest in calls and puts, and the back and forth activity of options traders on both sides of the contract as they unwind positions, keeps the price hovering around the strike price.
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When a pin risk occurs, the writer of the option faces a potential loss whether or not he covers his position.
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Physical options are used by farmers and dealers as a means of actually exchanging commodity assets at predetermined prices so as to protect against the effects of price fluctuations that would be unfavourable to either party, and to supply the goods to the end-users.
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Physical deliveries are a common feature of commodities markets, where the commodity sellers (farmers and dealers) deliver the physical commodity on which a contract has been made out to the end-buyer.
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Perpetual options do not require the trader to be exact about what time frame the asset will achieve the trade objectives. This is unlike the situation in conventional or binary options where prediction of expiry times are just as important as prediction of asset price behaviour.
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There are several types of path-dependent options. As the name implies, payout depends on the "path" that the option chose to follow. The sequence of pattern of strike price attainment for instance, determines the eventual payout. This type of trade is used by traders to trade an asset whose value is expected to fluctuate a lot during the life of the contract, as opposed to just heading up or down in a straightforward fashion.
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This strategy is mostly used by speculative options writers who aim to collect premiums from such trades, hoping that the trades will expire worthless on the buyers of such an option.
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An overwrite is a type of covered call and is therefore a hedging strategy that is used when the trader already owns the asset but intends to generate maximum returns from the added premiums that will be collected.
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This is a measure of the usage of stock options in a company and consequently, the measure of the level of dilution that shareholders of a stock will be exposed to when stock options are used as compensation to employees or executives. A higher overhang produces more dilution and reduces the returns on the shareholding. A lower overhang reduces the diluting effect.
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Outright options are unhedged trades and therefore carry greater risk as any losses incurred cannot be offset by contrarian hedged positions in the market where the parent asset is listed.
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In the binary options market, outperformance options are traded as "paired options". Here, traders are presented with two assets in the same class and with similar characteristics, and traders are required to predict which asset will outperform the other within a given time frame.
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An option is out of the money when it ends in a contrary position to that taken by the trader. In other words, an option that is out of the money is a losing trade in the options/binary options market.
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OTC options present easier entry opportunities to traders to trade options, but these options are more risky because they are not subject to the stringent regulations that options listed in the conventional options markets are subjected to.
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The entire sequence of data collection, consolidation and dissemination from the participating options exchanges to the end users and approved vendors is governed by OPRA.
