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Showing results for tags 'options'.
Found 166 results
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The Black's Model was developed by one of the originators of the Black-Scholes Model, and was created as a variation of the Black-Scholes model to be able to allot a value to futures contracts.
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The Black-Scholes option pricing model is an example of a gamma pricing model which is usually applied to a stock option to determine its value, using the price variation of the stock, the time value of money, the strike price and expiry time of the option and the time value.
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The buyer of the Bermuda swaption
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The aim of the bear straddle is to profit from a very small price decline of the asset and so collect the premiums on both the short call and short put components of the trade. This trade type is risky as large moves (even to the downside) will cause losses that offset any premiums collected, leading to a losing position.
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This option type will turn a profit when the price of the asset declines. It is usually used in agricultural commodities trading to trade two similar assets, or even the same asset on the two legs.
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The aim of the trade is to benefit from a decline in the price of the asset below the strike price of the short put leg of the option trade. The trader can then profit from the difference in the strike prices multiplied by the number of shares traded in the deal.
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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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What happens with a balloon option is that instead of getting a payout of a dollar for dollar amount for every price increase of the asset, the payout increases for every dollar price increase of the asset in a pre-determined ratio. So if a balloon option is traded with a pre-set threshold of $60 and the price increases by say $2 to $62, then the payout may be $1.5 for every extra $1 gain.
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The backspread can be executed using call or put options, and has unlimited profit potential while the loss potential is limited. An example of a backspread option is the ratio backspread option.
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Compound options usually have a call and put component, with one option being exercised for the purchase of the other. The back fee is the premium that is charged on the second round of the option.
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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 falling prices, and the price on expiration is $63, then the average price put payout will be ($70 - $63) X 1,000 barrels = $7,000 (less commissions payable on the trade. If the price on expiration was say $73, then the payout for the trade is zero.
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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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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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In the options and futures markets, there are contracts that have to be settled with physical delivery of the items being traded (especially commodities). When these contracts mature, the brokerage or clearing houses then have to get the sellers of these contracts to deliver the physical assets to the buyers of the contracts for proper settlement.
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As an example, a trader in Canada may want to purchase commodity options on corn from a farmer in Chicago, but is worried that in the coming days before the trade is to be settled, the currency of the transaction (US dollars) may gain value over the CAD. He then assumes a long position on the US Dollar to offset any effect the USD gain will have on his option trade (i.e. hedge against a USD gain causing him to pay more for the options transaction). This is an anticipatory hedge.
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India will have its once in five year general elections at some point in the next 7 months. If the current government does not decide to call them earlier, they will have to be held in May 2014 as the term of the current government expires then. It is almost a given that IVs will rise from the current levels the moment the elections are announced. I'm looking for a way to benefit from this increase without taking any directional call on the markets. Although India does have its own VIX, there is no futures on the VIX. If there were futures, I would have bought the futures and rolled them over till the elections. Would like to know if there is a way to benefit from an expected increase in IVs in the absence of VIX futures. One has to keep in mind that the IVs could increase sharply at any point from now till May and be able to exit when that spike comes and of course, the fact that I'm looking for a non-directional strategy.
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Hello everyone, I would like to know if volume is important to options. Say i want to sell 100 XYZ at 169, but there is only a volume of 10. What would happen? What if I want to buy 100 and there is only 10 volume. I have looked all over for a answer to this question but have not found an answer.
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Good Morning. For Futures, I'd like to understand how the Implied Volatility (iVol) of a particular option chain relates to its underlying. Better to use an example: I'd like to write puts on the Dec'13 Option Chain for Natural Gas (/NG). This particular Option Chain is associated to the December Contract (/NGZ3). Obviously, I'd like to time my short position with a high iVol, ideally after a peak has occurred. My doubt is if the iVol associated with the Dec Options is tight with the specific Dec contract. One can tract the iVol for each specific contract and they all behave differently. I use ThinkOrSwim for this purpose. On the other hand, iVolatility.com provides a iVol index for the underlying as a whole. Which approach better reflects the iVol of the Option chain? Thanks,
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An options contract is made up of 100 units of the underlying assets. Traders can only trade assets in the conventional options market as multiples of 100 units, making up the options contract.
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Founded in 1973, the OCC is the world's largest derivatives clearing organization. They provide guarantees on all contracts passing through their clearing desks so that there are no delays and that confidence is maintained in the system.
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This is the process of giving an employee an option that is dated prior to the actual grant date. The practice is considered to be illegal if it is not properly disclosed to the Securities and Exchange Commission.
