A synthetic definition is a type of options trading strategy that involves combining two or more options contracts to replicate the payoff of another options contract. The most common synthetic definition is a call spread, which is created by buying a call option and selling a call option with a higher strike price. Can you … Read more
An out of the money (OTM) option is an option that has no intrinsic value. This means that the option is not currently in-the-money and, if exercised, would result in a net cash outflow to the option holder. OTM options are typically cheaper than their in-the-money or at-the-money counterparts because they have a lower probability … Read more
Transaction risk is the risk that a security’s price will move adversely between the time an order is placed and the time it is executed. This type of risk is often referred to as market risk. For example, if a stock is trading at $50 per share and an investor places an order to buy … Read more
Warrant coverage is a term used to describe the number of warrants that are outstanding in relation to the number of shares of a particular stock. For example, if a company has 1,000 shares of common stock outstanding and 100 warrants outstanding, the warrant coverage would be 10%. Warrant coverage can be an important factor … Read more
. In the Money Options: Definition, Call & Put Options, and Example. What happens when ITM options expire? When an ITM (in-the-money) option expires, the option holder will receive the underlying asset (e.g. shares of stock, futures contract, etc.) from the option seller. If the option is European-style, then the option can only be exercised … Read more
The value date of a financial instrument is the date on which the instrument’s value is determined. For example, the value date of a foreign currency note is the date on which the note is exchanged for the foreign currency. The value date of a futures contract is the date on which the contract expires. … Read more
When trading options and derivatives, it is important to understand forward rates. The forward rate is the rate at which a particular currency is expected to trade at some point in the future. This rate is determined by the spot rate, which is the current market rate, and the interest rate differential between the two … Read more
A call option is an agreement that gives the holder the right, but not the obligation, to buy an underlying asset at a specified price within a specified time frame. Call options are typically used as a way to speculate on the future price of an asset, or to hedge against the downside risk of … Read more
The forward margin definition is the minimum amount of funds that must be deposited in order to open a forward contract. This margin is set by the exchanges and must be posted by both the buyer and the seller. How does forward make money? Forward contracts are derivative instruments that allow two parties to agree … Read more
A range accrual is a type of interest rate swap in which the floating leg of the swap pays periodic interest payments based on a underlying reference rate, less a predetermined spread, while the fixed leg pays a fixed rate of interest. The payments on the floating leg are based on the difference between the … Read more
