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Showing results for tags 'option'.
Found 240 results
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Straddles, iron condors and strangles are examples of vertical spread trades in the options market.
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It is one of the ‘options Greeks’ together with delta, gamma, rho and theta. The essence of a vega neutral strategy is to neutralize the effect of volatility on an options position.
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Vega is one of the Greek option paramters which are used to evaluate the risk profile of an options contract. Vega is a measure of the sensitivity an asset is to volatility. Large volatility = higher vega, low volatility = lower vega values.
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The goal of a variable ratio write is to make money by collecting premiums on all the short call option trades that are setup. Best used for low volatility assets.
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A vanilla option simply refers to some of the uncomplicated (straightforward) ways of executing options trades. Naked calls and puts are examples of vanilla options.
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his is used as a less expensive method of hedging a short option position, usually by large market players such as hedge funds and other institutional investors.
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An underwater option has a high chance of expiring worthless.
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The underlying option security is the asset that is traded by the trader in the financial markets. Such an asset has value, and it is the perceived value as traded in the markets that produce the change in the price of the option security which create money opportunities in the market.
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The essence of the Trade or Fade rule is to prevent trades being executed at prices that are not optimal when there are better offers available elsewhere.
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The time value of an option is higher when the expiration is still at a distant date. As the expiration draws closer, the time value of the asset erodes. If traders want to gain from an asset by exercising it, it should be done in the first half of the asset's lifespan so as much time value is retained on the asset.
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Time decay occurs because the demand for the asset drops off when the option is about to expire. It is a factor that traders must consider when making a choice of whether to exercise the option or not.
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Theta is always negative because of the decrease in the value of the option over time. This is one factor that traders who hold option contracts, especially long contracts, should be aware of when positioning their trades.
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Traders who implement an in-the-money naked call strategy are betting that the market price of an option's underlying asset will fall. The technique involves selling an in-the-money call option, hoping that it will expire out-of-the money. Traders who employ this type of bear option strategy do not need cash to enter the market. However, the terms of their call sale will limit their profit potential. On the contrary, an investor's loss potential is infinite. If the market price rallies, traders who use this strategy will incur large monetary losses. Moneyness Review for Calls Out-of-The Money (OTM) = Strike price (more than) Market Price In-The-Money (ITM) = Strike price (less than) Market Price At-The-Money (ATM) Strike price (equals) Market Price How to Carry Out An In-The-Money Naked Call Strategy Disney stock is worth $48 (market price) in June. 1) Trader sells the call option: DISJul40($10) - 100 shares of Disney stock - Strike Price $40, in-the-money (ATM), expiring in 30 days - Premium Cost of $10 2) Trader receives a $1000 credit when entering the market [$1000 (received from call buyer)] Total cost to enter the market: -$1000 Result one: Disney stock rises (rallies) to $68 in July a) The call option sold expires ITM, and the investor who bought the trader's call option exercises his or her right to buy 100 shares at $40. b) The trader purchases 100 Disney shares in the open market to cover the short sale, paying $6800, and then sells the shares to the buyer, receiving $4000. c) The trader loses a total of $1800 after subtracting the premium credit taken when entering the market. [-$1800 = $1000 (credit to enter market) - $2800 (loss from call)] Result two: Disney stock falls (moderately) to $45 in July. a) The call option sold expires ITM, and the investor who bought the trader's call option exercises his or her right to buy 100 shares at $40. b) The trader purchases 100 Disney shares in the open market to cover the short sale, paying $4500, and then sells the shares to the buyer, receiving $4000. c) The trader's profit totals $500 after subtracting the loss from premium credit taken when entering the market. [$500 = $1000 (credit to enter market) - $500 (loss from call)] Result three: Disney stock falls (crashes) to $28 in July. a) The call option sold expires worthless (OTM). b) The trader's profits totals $1000 after keeping the credit earned when entering the market. Advantages and Disadvantages in Carrying Out An In-The-Money Naked Call Strategy Pluses: The upside to this type of strategy is that investors do not need cash to enter the market. They are betting that the asset's market value will crash and the call will expire OTM, allowing them to keep the credit earned when entering the market. Traders can also use the credit to gain a profit in moderate bull markets or to offset losses if the underlying asset's value rallies. Minuses: The downside in using an in-the-money naked call strategy is that it exposes traders to high-risk losses when the market rallies, since any asset's market price could theoretically rise as much as demand permits. The method also limits the trader's profit potential to only what he or she received when entering the market.
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Traders who implement a bear put spread are betting that the market price of an option's underlying asset will fall. The technique involves buying and selling put options for the same underlying asset. The profit potential and risk involved when using this strategy are both limited. The bear put spread strategy limits an investor's profits to the amounts received when settling the put options, and the maximum loss only equals what he or she pays to enter the market. Moneyness Review for Puts Out-of-The Money (OTM) = Strike price (less than) Market Price In-The-Money (ITM) = Strike price (more than) Market Price At-The-Money (ATM) Strike price (equals) Market Price How to Carry Out a Bear Put Spread Disney stock is worth $38 (market price) in June. 1) Trader sells a put option: DISJul35($1) - 100 shares of Disney stock - Strike Price $35, out-of-the-money (OTM), expiring in 30 days - Premium Cost of $1 2) Trader buys a put option: DISJul40($3) - 100 shares of Disney stock - Strike Price $40, in-the-money (ITM), expiring in 30 days - Premium Cost of $3 3) Trader pays a total of $200 to enter the market [$300 (paid to purchase put) - $100 (received from put sale)] Total cost to enter the market: $200 Result one: Disney falls to $34 a) The put option sold expires ITM. The investor who bought the trader's put option exercises his or her right to sell 100 shares at $35. The trader pays $3500 to the buyer, and receives 100 Disney shares. b) The put option bought is ITM. The trader exercises his or her right to sell 100 shares at $40 to the investor who wrote the put option. The trader sells his or her Disney 100 shares and receives $4000 from the writer. c) The trader makes a total profit of $300 after subtracting the costs to enter the market. [$300 = $4000 (received for 100 shares) - $3500 (paid for 100 shares) - $200 (cost to enter market)] Result two: Disney rises to $42 a) The put option bought expires worthless (OTM) b) The put option sold expires worthless (OTM) c) Trader loses a total of $200 after adding the amount paid to enter the market. Result three: Disney falls to $38 (Breakeven) a) The put option sold expires worthless (OTM) b) The trader buys 100 Disney shares in the open market for $3800. c) The put option bought is ITM. The trader exercises his or her right to sell 100 shares at $40 to the investor who wrote the put option. The trader sells his or her Disney 100 shares and receives $4000 from the writer. d) The trader breaks even, making a total profit of $0 after subtracting the costs to enter the market. [$0 = $4000 (received for 100 shares) - $3800 (paid for 100 shares) - $200 (cost to enter market)] Advantages and Disadvantages in Carrying Out a Bear Put Spread: Pluses: The upside to this type of strategy is that the investor knows exactly how much he or she will win or lose before carrying out the bear put spread strategy. The investor also knows the strategy's breakeven point, which is the strike price of the put option purchased subtracted from the cost to enter the market. Minuses: The downside in using bear put spread strategy is that the method limits an investor's profits. If the market value of the underlying stock falls significantly, the trader will only gain the price difference between the two put option's strike prices.
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Does someone know where I could find historical data for options? Is there any free/paid service to get that data for the past couple of years? Ideally, I would like to find minute data. Thanks.
