When you buy or sell an option, the potential risk is referred to as pin risk. Pin risk is the risk that the price of the underlying asset will be “pinned” at the strike price of the option at expiration. This can happen if the underlying asset’s price is very close to the strike price … Read more
A protective put is an options trading strategy that involves purchasing a put option to hedge the downside risk of a long stock position. The put option gives the holder the right, but not the obligation, to sell the underlying stock at a predetermined price (the strike price) on or before a specified date (the … Read more
Spreads in Finance: The Multiple Meanings of Trading Explained How do you call a spread? A spread is an options trading strategy that involves buying and selling two different options contracts at the same time. The two contracts can be either both call options or both put options, or one call option and one put … Read more
A knock-out option is a type of exotic option that becomes void if the underlying asset’s price reaches or exceeds a predetermined price level. The predetermined price level is known as the knock-out price. If the knock-out price is reached or exceeded at any time during the life of the option, the option is immediately … Read more
A capped option is an option whose upside potential is limited by a predetermined price level. A call option is capped at the strike price of the option, while a put option is capped at the strike price minus the premium paid for the option. The purpose of capping an option is to protect the … Read more
. Delta Hedging: What It Is, How It Works, and an Example What is delta option example? A delta option is an option whose underlying asset is a stock or other asset that has a linear price relationship with the underlying asset. The delta is the amount by which the price of the underlying asset … Read more
1. What is an options contract? 2. How does an options contract work? 3. What are the different types of options contracts? How can I learn options trading? 1. Read books and articles on options trading strategy. A good place to start is the Options Industry Council’s website, which offers a variety of resources for … Read more
An option chain is a listing of all the options for a particular security, including the prices and other relevant information. Each option represents the right, but not the obligation, to buy or sell the underlying security at a particular price (the strike price) on or before a particular date (the expiration date). An option … Read more
Cash-settled options are options where the payoff is received in cash, rather than in the underlying asset. This is typically used when the underlying asset is difficult to deliver, or when the parties do not want to take on the associated risks of holding the underlying asset. Can I trade with settled cash? Yes, you … Read more
A naked put is an options trading strategy involving the sale of put options without shorting the underlying stock. This strategy is also known as an uncovered put. Naked puts are generally used to generate income, as the premium received from selling the put options can offset any potential losses from the underlying stock falling … Read more
