The Options Greeks – Theta, Vega, Delta, Gamma and Rho – measure option price sensitivity to changes in time, volatility, stock price and other parameters. In the world of finance, Greek letters are used to represent how sensitive a financial derivative’s prices are to changes in parameters; the options Greeks are the option version of these.
An options strangle strategy is holding both an out of the money put and call option with different strike prices, but the same expiration date and underlying asset. And paying both the put and call premiums.
A costless, or zero cost, collar is an options spread involving the purchase of a protective put on an existing stock position, funded by the sale of an out of the money call. Zero cost collars can be established to fully protect existing long stock positions with little or no cost.
In the money options are those whose strike price is less (for call options) or more (for put options) than the current underlying security price. Options provide the right to buy (call options) or sell (put options) a linked underlying security, such as a stock, at some stage in the future at a preset exercise price.
Out of the money (OTM) options: where the exercise price for a call is more than the current underlying security’s price (or less for a put). This is an example of ‘moneyness’ – a concept which considers the strike price of an option in relation to the current stock price.
An options spread is a strategy involving multiple options contracts of the same type (either all calls or all puts) that are bought and sold simultaneously to capitalize on differences in strike prices or expiration dates.
What is Buy to Open vs Buy to Close? We look at these two similar, but not exactly the same, concepts. There are two ways you can participate in the options market: you can buy or you can sell. This sounds simple enough. Except there’s more to it: when you buy or sell, you can also either open or close.
What is Sell to Open vs Sell to Close? We look at these two similar, but not exactly the same, concepts. There are two ways to participate in the options market; you can either buy or sell. But you can also buy/sell to open or to close. Below we go through what these terms mean and which is the most appropriate.
The Reverse Iron Condor is an options spread opposite to the popular Iron Condor spread. The trade aims to profit from increases in volatility in either price direction while mitigating the risks of unlimited losses. The spread differs from other long-volatility spreads like the long straddle or long strangle in that its upside is capped.
Synthetic positions in options trading is the use of options and/or stocks in order to produce positions that are equivalent in payoff characteristics as another totally different position. So, can we to produce the payoff characteristics of one of the most popular options strategies, the Covered Call, without buying the underlying stock?
A call option payoff depends on stock price: a long call is profitable above the breakeven point (strike price plus option premium). The opposite is the case for a short call. A call option payoff diagram shows the potential value of the call as a function of the price of the underlying asset usually, but not always, at option expiration.
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