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Found 227 results

  1. In the ladder option, the full payout is not hinged on one outcome or one strike price. Rather, the payout is broken up and attached to several strike prices, such that the attainment of a strike delivers some degree of payout. This ensures that the trader is guaranteed some measure of profit if even one of the pre-set strike prices is achieved.
  2. This option is programmed to expire worthless when a particular price level is reached, usually in favour of the trader. There are options which will be of benefit to a trader if they expire worthless (for instance if a premium was collected on trade execution). Knock-out options have a limited profit potential.
  3. A knock-in option stays latent until when the price has exceeded or reached a pre-determined price level. Then the option now begins to function as a true option. If that price is never reached, then the knock-in option is never activated.
  4. Kappa is yet another of the measures of implied volatility known as the Greeks.
  5. "The iron condor is an option type with limited profit or loss potential. This strategy is mainly used when a trader has a neutral outlook on the movement of the underlying security i.e. the trader expects the asset to stay range-bound for the duration of the trade. "
  6. The two options located at the middle strike create a long or short straddle depending on whether the options is being bought or written. The "wings" of the butterfly (the options above and below the middle strike) are created by the purchase or sale of a strangle. This strategy is used to protect the trader's position against dramatic rises and falls in price.
  7. The interest rate option is an options contract in which a fixed rate of interest is paid at a specified price and future date. They are also called debt options or fixed income options.
  8. This type of options can be used in periodic payment situations or balloon payment situations.
  9. In an inflation swap, there are two parties to the deal. One party transfers the inflation risk, and the other party assumes the inflation risk. One party's assets are linked to a price index and the other party's assets linked to cash flow (which could be fixed or floating).
  10. Traders who do not find it comfortable trading stocks in the options market can decide to trade the performance of a group of options measured by an index. These options are known as index options.
  11. It compels the responsible counterparty to reimburse the non-responsible counterparty for all losses and damages that were brought about by the premature termination of the swap.
  12. Illiquid options are difficult to sell because they are far away from their expiration dates and as such when they are sold, they are sold at a huge discount.
  13. Also called a calendar spread, this option strategy hopes to take advantage of different moves of the asset at various times. For instance, an asset may be bearish at a certain time, and then bullish thereafter. By using a calendar spread, the trader can benefit from the different conditions for the asset as a result of the different expiry times set for the two sets of options trades.
  14. Horizontal skews can either be forward skews when volatility increases from near to far months or, reverse skews when volatility decreases from near to far months.
  15. Options trades are commonly used as hedging transactions to protect trades in the parent markets of the assets traded. Typically, the trade used as a hedge goes in an opposite direction so that a loss in the parent market on that asset will translate into a profit on the trade used as the hedge, cutting down any losses sustained.
  16. Investors who enter into this type of position, have the expectation that the option will expire worthless and thereby receive a large up front premium.
  17. The Greeks which include gamma, vega, delta, rho, and theta, are often used for dynamic hedging. Of all these, only Vega does not have a Greek alphabet assigned to it.
  18. Some options pay the option writer a premium on writing the option. This is why some traders prefer to become option writers or grantors.
  19. While a globally floored contract helps the investor recover some of his initial investment in the options contract, activating the use of a globally floored function will prevent the trader from receiving the maximum payout if the trade ends up a winner.
  20. The Black-Scholes option pricing model is an example of a gamma pricing model.
  21. Gamma is used as a measure of the inherent volatility of an asset. A very volatile option contract implies a large gamma. A small gamma therefore implies an asset with low inherent volatility.
  22. Bid and ask spreads on contracts of this kind tend to be rather wide because of the illiquidity of such contracts.
  23. "These are assets that are easily exchangeable and tradable. Commodities, common shares of the same company, and currencies are all examples of fungibles. "
  24. Created by Professor Mark Garman in 1989, it represents the optimal date with which to exercise an American option.
  25. Also known as ratio vertical spread, the frontspread is used by professional traders when they believe that the asset will make a calculated upward move. It is a risky strategy because loss potential is unlimited but profit potential is limited.
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