An uncovered option is a call or put option whose underlying security is not owned by the option writer. Also known as a naked option. An uncovered option is high risk because the option writer has no offsetting position in the underlying security. What is uncovered risk? Uncovered risk is the risk inherent in options … Read more
An option class is a group of options that share the same underlying asset. For example, all options on XYZ stock would be considered part of the XYZ option class. The underlying asset may be a stock, index, currency, or commodity. What are the four basic option strategies? The four basic option strategies are: 1. … Read more
Volatility arbitrage is a type of statistical arbitrage that is implemented by trading a portfolio of options. The key idea is to take advantage of the differences in the implied volatility of options with different strikes and expiration dates. The strategy involves buying options that are underpriced relative to their implied volatility and selling options … Read more
A short leg definition is a options trading strategy that involves the simultaneous purchase and sale of two options contracts with different strike prices, but with the same expiration date. The options purchased are typically out-of-the-money options, while the options sold are typically at-the-money or in-the-money options. The idea behind this strategy is to profit … Read more
A Hull-White model is a type of mathematical model used to predict the future behavior of interest rates. It is named after its creators, John C. Hull and Alan White. The model is based on the assumption that interest rates are governed by a stochastic process known as the Vasicek model. This model describes how … Read more
A lookback option is an exotic type of financial derivative that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a price that is equal to the lowest or highest price that the asset has traded at during a specified period of time. The key feature of … Read more
A writer definition is a type of options trading strategy in which the trader seeks to profit from the premium paid by the option buyer. The writer sells the option, collecting the premium as their profit. If the option expires worthless, the writer keeps the entire premium. If the option is exercised, the writer may … Read more
Parameters and Trading, With Examples. What Are Stock Options? Stock options are financial instruments that give the holder the right, but not the obligation, to buy or sell shares of a publicly traded company at a predetermined price within a certain time frame. Which trading is best for beginners? There is no definitive answer to … Read more
An expiration time is the date and time when an option contract expires. The expiration time for most options is the third Friday of the month in which the contract expires. However, options on some ETFs and indexes may have different expiration days and times. If you own an option contract, you have the right, … Read more
. Put-Call Parity: Definition, Formula, How it Works. Why does put-call parity not hold for American options? Put-call parity is an important concept in options trading that states that the price of a put option equals the price of a call option with the same strike price and expiration date, minus the underlying asset’s price. … Read more
