Mindblown: a blog about philosophy.
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U-V
UNDERLYING: The security upon which the value of an option depends. Underlying securities can include stock, futures and indexes. UNDERVALUED OPTION: An option trading at less than its theoretical value, as estim using an option valuation model. UNSYSTEMATIC RISK: The risk of an individual stock that is a function of that comp outlook for earnings, […]
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W-X
WASTING ASSET: An asset that has a limited life and tends to decrease in value over time(all other factors being held constant). Options are wasting assets. WRITER: The seller who initiates a short options position.
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VEGA
Option Vega is a measure of the sensitivity of the price of an option to changes in the implied volatility of the underlying asset. Vega values represent the change in an option’s price given a 1% move in implied volatility, all else equal. This is the option’s sensitivity to volatility. Simply put,it describes how the […]
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Rho
Understanding Rho: The Greek that Measures Interest Rate Sensitivity When delving into the world of options trading, it’s crucial to understand the various Greeks, each of which provides insight into different dimensions of risk and opportunity. One of the often overlooked but essential Greeks is Rho. This Greek measures an option’s sensitivity to changes in […]
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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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