A risk graph is a visual representation of the potential profit or loss of an options trading strategy at a given point in time. The x-axis of the graph represents the underlying asset’s price, while the y-axis represents the potential profit or loss. The shape of the graph will depend on the type of option … Read more
A horizontal spread is an options trading strategy that involves buying and selling options with different strike prices but with the same expiration date. The strike price is the price at which the option holder can buy or sell the underlying asset. The expiration date is the date on which the option expires and becomes … Read more
A non-equity option is an option that does not involve stock as the underlying asset. The most common type of non-equity option is a commodity option, which gives the holder the right to buy or sell a particular commodity at a set price on or before a specified date. Other types of non-equity options include … Read more
A quanto option is an option where the underlying asset is denominated in one currency, but the payoff is in another currency. This type of option is often used when an investor wants to speculate on the movement of an asset, but wants to hedge against currency risk. For example, let’s say that an investor … Read more
A call premium is the amount by which the price of a call option exceeds the intrinsic value of the underlying asset. The intrinsic value is the difference between the strike price and the underlying asset’s price. The premium also includes the time value, which is the amount by which the option’s price exceeds its … Read more
Option pricing theory is a branch of financial economics that deals with the pricing of options and other derivative securities. It is based on the premise that the price of an option is determined by the underlying security’s price, the option’s strike price, the time to expiration, the level of interest rates, the volatility of … Read more
Buy to open is an order type that is used when initiating a long options position. A buy to open order is placed when the investor believes the price of the underlying asset will rise. The investor will place a buy order for the options contract, and will be ” long” the contract. This means … Read more
Quadruple witching is the term used to describe the expiration of four different types of options contracts on the same day. This event occurs on the third Friday of March, June, September, and December. Because options contracts usually expire on the third Friday of the month anyway, quadruple witching days are ones where there is … Read more
Color in option trading refers to the difference in the bid and ask price of an option. The bid price is the price that a trader is willing to pay for an option, while the ask price is the price that a trader is willing to sell an option. The difference between the bid and … Read more
A put calendar is an options trading strategy that involves buying a put option with a longer expiration date and selling a put option with a shorter expiration date. The trade is typically done when the underlying stock is expected to experience a short-term decline followed by a rebound. Are calendar spreads the best? There … Read more
