A put ratio backspread is an options trading strategy that is used when a trader believes that a stock will experience a significant price move, but is unsure of the direction. The trade involves buying a put option and selling a higher number of put options with a lower strike price. The hope is that … Read more
A flexible exchange option (FLEX) is a type of exchange-traded option that gives the holder the right, but not the obligation, to exchange one security for another security at a specified exchange rate on or before a specified expiration date. FLEX options are traded on the Chicago Board Options Exchange (CBOE) and are available for … Read more
An interest rate collar is an options strategy that involves the simultaneous purchase of a floor and a ceiling on the interest rate of a security, typically a bond. The floor protects against interest rate decreases, while the ceiling limits the upside potential of the security. The main purpose of an interest rate collar is … Read more
Pinning the strike definition refers to a situation in options trading where the price of the underlying asset is very close to the strike price of the option. This can happen at expiration, or during the life of the option. When this occurs, it is said that the option is “pinned” to the underlying asset. … Read more
A knock-in option is an option that only comes into existence when the underlying asset reaches a certain price, known as the knock-in price. If the underlying asset never reaches the knock-in price, the option will never exist and the holder will never receive any benefits. Knock-in options are often used as a way to … Read more
Stochastic volatility (SV) is a measure of the variability of an asset’s price. It is commonly used to quantify the risk of investments, such as stocks, bonds, and options. The term “stochastic” refers to the fact that the asset’s price is not known with certainty. The asset’s price can be thought of as a random … Read more
A credit default swap index (CDX) is a credit derivative used to manage risk and speculate on the creditworthiness of a group of companies. It is a credit default swap on a basket of credit default swaps, and is traded on the Chicago Mercantile Exchange (CME). A CDX contract is a credit derivative where the … Read more
. Bear Put Spread: Definition and Example A bear put spread is an options strategy that involves buying a put option with a lower strike price and selling a put option with a higher strike price. The strategy is used when the investor expects the price of the underlying asset to fall. How do you … Read more
Ladder options are a type of exotic option that offer a unique payoff structure. Ladder options are also known as “double no touch” options. With a ladder option, the trader has the potential to make a high return, but only if the underlying asset price does not touch either of the two predetermined price levels … Read more
A skew index is a measure of the degree of asymmetry in a distribution. It is a simple way to quantify the amount of skew in a distribution. The skew index is equal to the difference between the mean and median divided by the standard deviation. A distribution is said to be symmetric if the … Read more
