Category: Learning
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Theta
Understanding Theta in Options Trading Theta measures the rate at which an option’s price decreases as time passes, also known as time decay. Specifically, Theta quantifies the amount by which the value of an option declines with the passage of one day, holding other factors constant. Key Points about Theta: Time Decay: Theta represents time […]
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Beta
Understanding Beta in Options Trading Beta is a measure of an asset’s volatility in relation to the overall market or a designated benchmark, such as a stock index. It is a key concept in portfolio management and risk analysis, providing insights into how a particular asset moves in relation to the broader market. Definition and […]
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Vomma
Vomma is the rate at which the vega of an option will react to volatility in the market. It is a second-order derivative for an option’s value. Vomma demonstrates the convexity of vega. A positive value for vomma indicates that a percentage point increase in volatility will result in an increased option value which is […]
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Short combination/ Risk Reversal/ Combo (same strike)
Buying the put gives you the right to sell the stock at strike price A. Selling the call obligates you to sell the stock at strike price A if the option is assigned. This strategy is often referred to as “synthetic short stock” because the risk / reward profile is nearly identical to short stock. […]
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Long combination/ Risk Reversal/ Combo (same strike)
Buying the call gives you the right to buy the stock at strike price A. Selling the put obligates you to buy the stock at strike price A if the option is assigned. This strategy is often referred to as “synthetic long stock” because the risk / reward profile is nearly identical to long stock. […]
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Short Straddle
A short straddle gives you the obligation to sell the stock at strike price A and the obligation to buy the stock at strike price A if the options are assigned. By selling two options, you significantly increase the income you would have achieved from selling a put or a call alone. But that comes […]
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Strangle
A strangle trade is where you buy an Out-The-Money put whilst simultaneously buying an OUT-THE-Money call or vica-versa If you are short strangles, it is a strategy that profits when the stock stays between the short strikes as time passes, as well as any decreases in implied volatility. The short strangle is an undefined risk […]
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Long Straddle
The Setup Buy a call, strike price A Buy a put, strike price A Generally, the stock price will be at strike A A long straddle is the best of both worlds, since the call gives you the right to buy the stock at strike price A and the put gives you the right to […]
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Y-Z
Zomma Zomma is a third-order risk measure of the degree to which the gamma of an options contract is sensitive to changes in implied volatility. It is also referred to as ‘D-gamma/D-vol.’ Gamma itself is a second-order risk measure of an option’s sensitivity of its delta to changes in the underlying price.