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Found 227 results

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. Dividend arbitrage is executed by simultaneously buying put options and a corresponding amount of a stock with low volatility before the date of dividend payment. The intent is to profit from a good dividend payment, then exercise the put after collecting the dividend.
  8. Investors use currency options to hedge against unfavorable movements in the exchange rates. In the currency market, a fluctuation of just 10 cents can means a large loss for a company about to convert millions or billions of one currency for another for transactions.
  9. The value of the payout does not rely on the degree of movement of the price because it is fixed.
  10. The term diagonal spread stems from the fact that the trade is made up of a horizontal spread and a vertical spread. Diagonal spreads are used to profit from assets that are mildly bullish or bearish.
  11. "A calendar spread is an example of a delta spread. The calendar spread is created by using options with different expiration dates to construct a delta neutral position. The expectation is for the price to stay unchanged so that the trader can sell the call options that have longer expirations as the near expiration calls lose time value and expire. "
  12. In a delta neutral strategy, the net change of the position is zero because the negative deltas offset the positive deltas.
  13. It is used when a change in the price of the underlying asset causes an attendant change in the premium of the option.
  14. The delta is one of the "Greeks". A delta value of 1.00 implies that an in-the-money call option is nearing its expiration, while a delta value of -1.00, implies that an in-the-money put option is also nearing expiration.
  15. No matter whether the option is exercised on original expiry or exercised earlier like an American option, the payment of a deferred payment option is always made at the original payment date.
  16. A deferred option month is the same as the deferred month.
  17. The number of deferred months is important when calculating the time value of an asset. The lesser the number of deferred months, the lesser the time value of an asset as it does not take as much time for time decay to set in. The more the number of deferred months, the greater the time value of the asset.
  18. Options that are deep out of the money do not have any intrinsic value. If exercised, they will lead to a loss on the option trade or investment.
  19. The delta of a call option that is deep in the money is closer to 100%. In other words, a deep in the money option is an option that will yield profit if exercised at the present time.
  20. Profit is made from a debit spread when there is a significant change in the price of the underlying asset.
  21. The death put is only redeemable on the demise of the original owner, in which case the death put option will be redeemed at par value and paid to the estate of the deceased so that the beneficiaries can receive the proceeds.
  22. Credit spreads are issued by a company's bond holders to hedge against a negative credit event. The buyer of the credit spread option receives a premium on initiation of the trade, but assumes part of all of the risk of a credit spread option and will be required to pay the option seller if the spread between the company's debt and an official benchmark widens.
  23. Covered writers derive profits by receiving the premiums paid by the purchaser of the options contract. The trader aims for a double profit as a result: profiting from a fall in the price of the asset and also from the option expiring worthless, allowing him to keep the premium as well.
  24. This is a bullish strategy which provides for limited profit potential but has unlimited loss potential. Only the call position is covered. The put aspect of the trade is naked.
  25. This trading option is mostly used by traders who favor the bulls, and are seeking additional levels of premium income. This is because premiums are received on the put trade and paid on the call trade, but the net is a positive, credited to the trader's account.
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