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Showing results for tags 'option trading'.
Found 227 results
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The aim of the bear call spread is to benefit from a fall in the price of the asset below the price at which the call options were sold. The premium on the long call minus the premium on the short call is now collected as profit, which is multiplied by the number of shares traded for the final payout.
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The basket option allows the trader to trade several assets at the same time and under the same conditions. An application of a basket option is when a corporation wants to get exposure to several currencies in a cost-effective manner (i.e. using one option to trade several currencies). The strike price is derived from the weighting of the individual assets in the basket.
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In the binary options market, the equivalent of the barrier option is the Touch/No Touch contract. There are two types of barrier options. The knock-in barrier option (Touch) gives a payout if the price touches the barrier price before expiry. The knock-out option (No Touch) gives a payout if the price of the asset does not touch the barrier before trade expiry.
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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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A company in the US may decide to pay 20,000 euros monthly to a company in Europe for raw materials at an agreed exchange rate. If at the end of the time interval for the option, the average of the monthly payments is less favourable than the strike price of the option trade, then the US company will receive a payment for the differential from the option issuer.If the average rate is found to be less desirable than the strike price, the hedging party receives the payment of the differential from the option issuer. No payments are made if the average rates are more favourable.
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This is used as a hedging strategy. As an example, if a trader purchased an average price put contract of 1,000 barrels of crude when the product is $70 with a view to benefit from rising prices, and the price on expiration is $75, then the average price put payout will be ($75 - $70) X 1,000 barrels = $5,000 (less commissions payable on the trade). If the price on expiration was say $67, then the payout for the trade is zero.
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The Atlantic ocean divides America from Europe, hence the name of the option. The aim of this option type is to be able to close out an option before expiry if it becomes profitable, so as to prevent time decay on the asset and also to be able to monetize an option faster, using the American leg of the option.
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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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It is one of the three regular option cycles that is used determine the expiration date of an option contract.
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Mini-sized Dow options provide an easier entry into the options market for investors that do not have as much money to trade the full-sized Dow option.
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The ability to exercise the options at different times as opposed to only at expiry gives the option buyers and sellers flexibility to trade the options and exercise them to their benefit. The degree of flexibility is less than for American options but more than what is obtainable with European options. Being in between America and Europe gives it the name "mid-atlantic".
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The master swap agreement is used to take care of the legal aspects of a swap deal between two parties, and provides a benchmark for future negotiations on the swap deal.
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By establishing a floor, the married put confers unlimited profit potential and limited loss potential on the trade. It is a hedge trade used to protect against massive drops in the price of the underlying asset.
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"This is an exotic option. The payoff depends on the maximum or minimum underlying asset's price occurring through the option's duration. The option holder can ""look back"" as it were to determine the payoff. The option can be of the fixed or floating type. "
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By straddling the asset's market price, the long straddle is an option trade type that is used to benefit from up or down movements of the asset. So whether the asset price rises or falls, the long straddle is a winner. Used when the trader is sure that the asset will move in a direction, but is unsure of which direction.
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In trades were traders either receive or pay premiums on trades, it is necessary to know which of the trades initiated involves long trades. These are the long legs of the trades.
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The long jelly roll is an options trade that aims to profit from a time value spread through the sale and purchase of two call and two put options, each with different expiration dates.
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Lock-up options are usually priced in such a way as to deter unwanted buyers and attract only the buyers that the option owners want to sell to.
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Some options are usually not listed on an exchange, and that is why the listed options serve to distinguish listed assets from unlisted ones.
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When the interest rates payable are those of the day on which they are to be paid, it would potentially benefit investors who want to pay lower interest rates. In this case, if interest rates are falling, then the LIBOR in-arrears swap would be favourable to such investors.
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In trading, a trader can potentially increase the size of leveraged positions in order to benefit maximally from trade opportunities that present themselves. However, leverage build-up is a double-edged sword which can be potentially damaging if the trades that present extra leverage do not go in the trader's direction.
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A leg is used to describe a component of an option trade where that option trade requires more than one setup. An example of an option trade with legs is a straddle. A straddle has two trade components or legs, one above and the second below the market price.
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This model is most suitable for the pricing of employee stock options.
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An example of a lapse is the termination of an insurance contract due to failure to pay premiums by the insured party. For an options trade, the contract lapses when the asset reaches maturity, at which time the holder of that option can no longer hold the right to buy or sell the asset.
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This is one of the measures of implied volatility and price influences on options positions known as the "Greeks".
