Types of Options In this section we’ll give you some more context to the way that options markets work and who are the main participants involved. There are two main types of options: Over the Counter (OTC) options and Exchange Traded Options (ETO). OTCs are privately traded between the [...]
In the beginning, options trading will most likely be a little confusing. These sections are valuable and should be reviewed until the concepts are clear. As you read ahead, refer back to these sections for clarity and it will all come together. Basic Mechanics of Going Long and Short [...]
The Internet has made the process of reviewing option prices extremely easy. There are dozens of sites that provide quote services. Some of these services provide real- time quotes, but most are delayed by at least 20 minutes. If you want to receive streaming real-time data, you must be [...]
An option pricing model is a mathematical formula used to determine the theoretical fair-value of an option. By inserting the components just covered into a pricing model, a trader can determine what an option should be theoretically worth. Keep in mind that the price at which an option trades [...]
Volatility is one of the most important variables in options trading. It significantly impacts an option’s premium and contributes heavily to an option’s extrinsic value. Volatility can be defined as a measurement of the amount an underlying instrument is expected to fluctuate in a given period of time. In [...]
The options greeks are a set of measurements that quantify an option position’s exposure to risk. Options and other trading instruments have a variety of risk exposures that can vary dramatically over time or as markets move. Each of the option greeks represents a different variable of option pricing. [...]
A Risk Curve, or payoff diagram as they are sometimes referred to, is a graphic representation of the profit or loss of a position in relation to price changes in the underlying security. When drawn with software, risk profiles can also take into account the effects of changes in [...]
