An option is a contract that gives the owner the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a certain date. Writing an option refers to the process of selling an option contract to another party. The person who sells the option contract is … Read more
A basket option is an options trading strategy that involves buying or selling a basket of underlying assets. The assets in the basket can be anything, but they are typically stocks, commodities, or currencies. The purpose of a basket option is to diversify one’s portfolio and to hedge against risk. By buying a basket of … Read more
SPAN is short for Standard Portfolio Analysis of Risk. It is a risk management system used by CME Globex to assess the margin requirements for trading options and futures contracts. The SPAN margin system was developed by the Chicago Mercantile Exchange (CME) in 1988. The SPAN margin system uses a portfolio approach to determine margin … Read more
Rho is a measure of the sensitivity of an option’s price to changes in the interest rate. It is one of the “greeks” used in options trading. A high rho means that the option’s price will move significantly when interest rates change. Does high volatility mean high vapor pressure? In general, yes, high volatility does … Read more
An underlying security is a security, such as a stock, currency, commodity, or index, that is used as the basis for deriving the value of another security, such as an option. The underlying security is the security upon which a derivative’s value is based. Why do people lose options trading? There are a variety of … Read more
Credit Spread: What It Means for Bonds and Options Strategy. Can credit spreads be negative? Yes, credit spreads can be negative. In general, a credit spread is any options trading strategy that results in a net credit to the trader’s account. There are many different types of credit spreads, but the most common is the … Read more
A naked position is an options position that is not hedged. A naked call is an options strategy where the trader writes (sells) call options without owning the underlying asset, and a naked put is an options strategy where the trader writes (sells) put options without owning the underlying asset. What is the maximum loss … Read more
Moneyness is the relationship between the strike price of an option and the underlying asset’s price. The term is used to describe whether an option is in the money (ITM), at the money (ATM), or out of the money (OTM). ITM options have strike prices below the underlying asset’s price for calls, and above the … Read more
A grantor is the person who transfers ownership of an asset to another person. In the context of options trading, the grantor is the party who sells the option. The grantor receives a premium from the option buyer in exchange for giving up the right to either buy or sell the underlying asset at a … Read more
A backspread is an options trading strategy that involves buying a put option and selling a call option, with both options having the same expiration date. The options are bought and sold in the same underlying security. The purpose of a backspread is to profit from a decline in the price of the underlying security. … Read more
