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Showing results for tags 'option trading'.
Found 227 results
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In simple language, the front fee is the cost of acquiring a compound option. Usually a second front fee is made when the option is eventually exercised.
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Even though the option is an advance trade, the premium for the trade is usually paid in advance. In addition, the expiration time is usually set at the time the forward start option is purchased.
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The formula method is used to calculate what compensation will be paid to the party that was not responsible for the early termination of the swap contract. Used in calculating compensation to one party in a currency swap deal.
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Option cycles are commonly used to determine the expiration dates of options contracts, and the FMAN months represent one of the cycles used in doing this.
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Created in 1993 by the Chicago Board Options Exchange (CBOE), FLEX options provide investors with the opportunity to trade expanded position limits.
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"When a trader purchases an optionb with a fixed expiry, the present value of the strike price is invested in an interest yielding account with very low risk. On maturity, this investment can then offset the costs of exercising the initial option if the holder decides to do so. "
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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.
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Far options attract larger premiums because they have longer expiry times, which gives them more time to expire in the money.
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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.
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Expiration times give an indication as to the time of the day that the option must be exercised when the due date has arrived.
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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.
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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).
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Examples of exotic options include binary options, compound options and Asian options.
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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.
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For options that are traded on stocks, the exercise limit is set to 2,000 contracts or 200,000 units of the underlying stock.
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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.
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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".
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
