Category: Learning

1. Long puts give you bearish speculation with fixed, limited risk. • Long a put will give you (upon exercise) the control over 1 future sold short. A long put has risk limited to the initial cost of establishing the position. • A long put has potentially unlimited gains as long as the price of […]

1. Long calls are bullish speculation with fixed, limited risk. In futures options, cach options contract typically represents one underlying future. A long call gives you control (upon exercise) of long 1 future. A long call position has risk limited to the initial cost of establishing the position. A long call position has unlimited upside […]

The value of an option depends mainly on two things: The likelihood that the option will finish in the money. The difference between the underlying price and the option’s exercise pric if the option does finish in the money. Effectively, the value of an option depends on the distribution of possible underlying prices, which depends […]

The following are the most common inputs to any options pricing model and are the most important factors influencing the options total premium. Exercise price-a benchmark for an option’s intrinsic value, it is also known as the strike price of the option. As mentioned above, the exercise price is the price at which you will […]

Definition: A call option is a contract between a buyer and a seller whereby the instrument at a fixed price on or before a fixed date, should the buyer of the call buyer acquires the right, but not the obligation, to buy a specified underlying wish to exercise the option. The seller of the call […]

Definition: The underlying is the instrument to be delivered in the event an option is exercised. An underlying can be a stock or shares of stock, an index, a futures contract, or a cash commodity. The amount of underlying for each option contract will depend upon the security traded and its specifications. For example, in […]

OPTION: An option on an underlying asset is either the right to buy the asset (a call option) or the right to sell the asset (a put option) at some predetermined price and within some predetermined time in the future. Notice that the key feature here is that the owner has the right but not […]

Options limit risk a. An option gives the holder a risk-limiting position in the underlying. b. Because they limit risk, they provide symmetric payoffs that can be used to reshape the profit/loss profile of a position. Option premiums and volatility a. The single most important difference between an option and an underlying is that the […]