Options Premiums Explained

An option is the right but not the obligation to purchase or sell an asset at a specific price, on or before a certain data.  Options trade at a price called a premium which is the amount a buyer pays a seller for the right to exercise an option.  The premium of an option changes...

The crucial role of delta in options trading

Without at least a basic understanding of options delta, nobody should venture into the world of options trading. Delta, one of the so-called Options Greeks, plays such a vital role both in options pricing that without understanding how it works, most traders are bound to make...

What is Implied Volatility?

Implied volatility is the market’s estimate of how much a security will move over a specific period of time.  Generally implied volatility is related in percentage terms and is a reflection of a securities potential movement on an annualized basis.  Implied volatility is used in...

What it means to get exercised in options trading

When a trader obtains a call option, that trader has the right to purchase the underlying asset at the strike price on the expiration day. The buyer of a put option in turn has the right to sell an underlying asset at the strike price when the expiration day arrives. In both...

Spreads and commissions and how they affect your profits

The advent of online trading has made a huge difference to the commissions being charged to execute a trade. Before the Internet, the only way for a trader to buy or sell trading assets was to ask a broker to execute the trade on his or her behalf. This usually happened over the...

Risk versus reward in options trader

Those unfamiliar with options trading often have a totally skewed perception when it comes to the risks involved with this type of trading. Some view it as a virtually risk free vehicle to instant riches, while others steer clear of options because they view them as ‘exotic’...

American style options versus European style options

In the options world there exists two different exercise styles. These are called American options and European Options. The main difference between the two is that American options can be exercised before the expiration date, while European options can only be exercised at the...

Options Backspreads Explained

Introduction Options backspreads are trading strategies, which have the aim of benefiting from volatile markets. In this context a volatile market is where a sharp price increase or decrease is expected. Typical examples of such a situation is just before publication of...

In the Money Options Explained

Introduction At any given moment during its lifetime, an option is either In the Money (ITM), At the Money (ATM) or Out of the Money (OTM). An In the Money option is therefore only one of the 3 options ‘moneyness’ states. A trader who understands how options are priced will find...

FX and Futures Options Trading

In the world of international finance and trade, FX options and futures options are much more common than the stock options traded in by the majority of US retail traders. The FX (Forex) options market is in fact the biggest, deepest and most liquid options market in the world....
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