A detachable warrant is an option that can be traded independently from the underlying security. Warrants are often issued by companies as a way to raise capital, and they give the holder the right to purchase shares of the company at a set price (the strike price) at any time before the warrant expires. Detachable … Read more
An iron butterfly is an options trading strategy that is created with four options: two calls and two puts. The options have the same strike price and expiration date. The strategy is used when the trader is expecting a small movement in the price of the underlying asset. The iron butterfly gets its name from … Read more
A caplet is an options contract where the underlying asset is a interest rate. The buyer of the caplet pays a premium to the seller for the right, but not the obligation, to receive a payment if the interest rate exceeds a certain strike price. A caplet is similar to a call option, except the … Read more
Bermuda options are options that can be exercised only on certain predetermined dates. They are popular in the financial industry because they offer investors more flexibility than traditional options. For example, a Bermuda option may allow the holder to exercise the option on any day during a certain period, whereas a traditional option would only … Read more
A spread option is an options trading strategy that involves buying and selling two different options contracts with different strike prices. The trader hopes to profit from the difference between the two strike prices. There are two main types of spread options: bull spread options and bear spread options. A bull spread option strategy is … Read more
A rainbow option is a type of exotic option that gives the holder the right to receive a payout based on the average price of the underlying asset over a specified period of time. The name “rainbow option” comes from the fact that the payout is usually represented as a ” rainbow” of payouts at … Read more
The reverse conversion definition is when the investor sells the underlying security and purchases the corresponding put option. This creates a synthetic long position in the underlying security. The advantage of this strategy is that it allows the investor to participate in the upside potential of the underlying security while also providing downside protection. Is … Read more
The Heston model is a stochastic volatility model, meaning that it assumes that the underlying asset’s volatility is itself a stochastic process. This is in contrast to most other option pricing models which assume that volatility is constant. The model was first proposed by Steven Heston in 1993, and has since become one of the … Read more
Bull Put Spread: How (and Why) To Trade This Options Strategy. How do you make money on a put spread? A put spread is an options strategy that involves buying one put option and selling another put option with the same expiration date but different strike prices. The put with the lower strike price is … Read more
Kurtosis is a statistical measure that quantifies the degree of peakedness of a distribution. It is a measure of the combined weight of the tails relative to the center of the distribution. A distribution with a high kurtosis (a “leptokurtic” distribution) has a peakedness that is greater than that of a normal distribution, while a … Read more
