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Found 227 results

  1. 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.
  2. In a cliquet option with a strike price of $1,200, if the option expires at $1,000, the trade will end out of the money. The cliquet option wil then ratchet the next strike price to automatically rest at the expiry price in the previous trade, which is $1000. If the trade then ends at $1,100, the trader gets a payout and the strike price is then reset to the trade expiry of $1,100 for the next trade.
  3. Chooser Option refers to option contracts that can only be exercised on certain days. It offers flexibility to both the holder and writer.
  4. The CBOE was opened in 1973 and is located in Chicago. Presently more than one billion options contracts are traded on the CBOE annually.
  5. Due to the fact that the Delta is an estimate of the intrinsic value of an option, the Charm is especially useful for measuring the decay of an option when it is close to expiration, since the chance of an option that is out of the money expiring in the money drastically decreases as the option draws closer to expiry.
  6. A chameleon option gives investors the ability to meet varying investment expectations with a single contract instead of purchasing multiple contracts.
  7. 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.
  8. 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.
  9. 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.
  10. This model is most suitable for the pricing of employee stock options.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. 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.
  16. 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.
  17. 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.
  18. 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.
  19. Some options pay the option writer a premium on writing the option. This is why some traders prefer to become option writers or grantors.
  20. 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.
  21. Binary options are also called fixed return options because the payout is fixed, and also called "all or none" options because the trader either receives all the money being paid out for a correct trade, or none of the money paid out if the chosen result is wrong.
  22. The buyer of the Bermuda swaption
  23. 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.
  24. 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.
  25. 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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