The Call Option. Options Boot Camp Part 2

Size: px
Start display at page:

Download "The Call Option. Options Boot Camp Part 2"

Transcription

1 Options Boot Camp Part 2

2 About Sunset Partners Our Presenters Today Robert Hamer, Principal Chief Investment Strategist & Portfolio Manager Experience Trader Chicago Board Options Exchange: Senior Vice President Merrill Lynch, Morgan Stanley Education J.D., California Western School of Law Mitch Hamer, Investment Analyst Junior Portfolio Manager, Client Communications, Investment Research Experience Trading & Research, Sunset Partners Management Consultant, Various Firms Education M.S. Communication, Northwestern University B.S. Psychology, University of Illinois - Urbana 1

3 Welcome to Option Boot Camp Part 2 The Call Option Welcome to Option Boot Camp Intro to Call Options Today we will go over the basics of call options By the end of the session, you may have more questions than answers Learning options is like learning a foreign language Take notes, ask questions, review notes, review the videos Housekeeping Any questions feel free to ask on the Q&A or Chat Box Q&A Session Time permitting, we will stay on a few extra minutes to answer questions Q&A Video Over the weekend, Mitch & Bob will address all questions from the webinar & s into a video that we will post on our website Our goal is to raise your level of market intelligence enabling you to take a more active role in overseeing your financial future. 2

4 Defined & Key Components Def: An option contract that gives the holder the right to buy the underlying security at a specified price for a certain, fixed period of time. One contract is equivalent to 100 shares of stock. Key Components Underlying Security Strike Price Expiration Period Price of Option Quantity Who trades call options? Those looking to speculate Stock substitution Generating income/yield on a portfolio 3

5 Option Chain 4

6 Option Chain The Calls Underlying Security Expiration Period Strike Price Cost of Option 5

7 Option Chain Underlying Security Expiration Period Strike Price Cost of Option 6

8 Option Chain Underlying Security Expiration Period Strike Price Cost of Option 7

9 Option Chain Underlying Security Expiration Period Strike Price Cost of Option 8

10 Option Chain Underlying Security Expiration Period Strike Price Cost of Option 9

11 Let s go over an example! Form a hypothesis Because AAPL reported unbelievable earnings they are trading cheap relative to other players in their sector, Apple Pay, Apple Watch, and further sales of iphone 6 will cause AAPL to trade 130. With this information in mind, how can we use a call option? This sets up a conversation on Buying vs. Selling Calls. Next slide. 10

12 Buying & Selling Calls Remember the definition of a call option. Def: An option contract that gives the holder the right to buy the underlying security at a specified price for a certain, fixed period of time. In order to buy the contract, there has to be a seller of the contract. Call Buyer Call holder, or buyer, is spending money. Upon buying a call, you have the right to own shares of stock at a specified strike price on or before a specified expiration period. When you buy a call option, if the underlying security goes up, the value of your call option goes up. If the underlying security goes down, the value of your call option goes down. Risk: As a call buyer, you cannot lose more than your debit. Contrast that to owning a stock the stock can go to ZERO. Call Seller Call seller is receiving money, known as a credit, for giving the call buyer an opportunity to purchase shares at a strike price. If you sell the call, you have the obligation to sell/deliver shares at a specified strike price on or before a specified expiration period. Risk: As a seller of calls, you have unlimited risk (exposure). A stock theoretically can go to infinity. More on this later. 11

13 Buying & Selling Calls Confused yet? You should be. Take detailed notes and let s proceed. Write down your questions and send them to info@sunsetpartnerscapital.com or type them in the chat box in the WebEx. We will address ALL questions. 12

14 Let s go over an example! Form a hypothesis Because AAPL reported unbelievable earnings they are trading cheap relative to other players in their sector, Apple Pay, Apple Watch, and further sales of iphone 6 will cause AAPL to trade 130. With this information in mind, how can we use a call option? This sets up a conversation on Buying vs. Selling Calls. Because we speculate AAPL will appreciate in price, we want to buy calls. Setting up the trade using the four components Underlying Security: AAPL Expiration Period: TBD, keeping in mind the July 2015 period Strike Price: I m not sure Cost of Option: Depends on strike price, right? Yes. 13

15 Strike Price As we ve mentioned, when setting up an option trade, you need to have a strike price. How do I choose the strike? In the Money At the Money Out of the Money 14

16 Strike Price As we ve mentioned, when setting up an option trade, you need to have a strike price. How do I choose the strike? At the Money The option strike that is closest to the current trading price of the underlying security With AAPL trading at , this one is pretty easy. At the money strike:

17 Strike Price As we ve mentioned, when setting up an option trade, you need to have a strike price. How do I choose the strike? In the Money If a call option is in the money, the current trading price of the stock is greater than the strike price. The 110 Strike would be considered deep in the money, while the 115 strike would be considered in the money 16

18 Strike Price As we ve mentioned, when setting up an option trade, you need to have a strike price. How do I choose the strike? Out of the Money If a call option is out of the money, the current trading price of the stock is less than the strike price. 17

19 Which Strike to Choose? Recall, your hypothesis is speculating AAPL trades 130. In The Money At the Money Out of the Money Strike Cost of Option Most Expensive Expensive Least Expensive Delta (Price of Option Relative to Stock) Greater than Less than 50 Probability High Probability Moderate Probability Low Probability Assumption: You want to use the long/purchased call option to make the most money, with spending/risking as little money as possible, controlling a large amount of stock, despite the low probability of an out of the money option. Let s move on. 18

20 Which Expiration Period to Choose Let s look at the out-of-themoney strikes. 120 Strike FEB JUL JAN 16 DTE* Ask Price $1.91 $7.20 $11.30 Clear relationship between amount of time & price Intrinsic vs. Extrinsic *DTE = Days To Expiration 19

21 Intrinsic vs. Extrinsic Stepping away from the example for a minute Intrinsic Value: An option that is in the money has intrinsic value equal to [TRADING PRICE STRIKE] Extrinsic Value encompasses several factors that prop up the price of an option before expiration: Time Value Volatility Dividends Closing Price of $ Feb 15 $115 Strike Price of Option Intrinsic Value Extrinsic Value 23 DTE $4.40 $2.00 $2.40 On Expiration $2.00 $2.00 $

22 Let s Make the Trade July Strike $7.20/contract Because you re new, purchase 1 contract, equivalent to 100 shares. $7.20 / contract = $720 debit Long Option vs. Buying Stock Buying Power Reduction: Long Call: $720 Cost of buying call contract Long Stock: $117*100 = $11,700 Profit/Loss Differential Price* Long Call Long Stock 85 -$720 $ $720 -$ $720 $ $380 $ $1380 $2300 *Closing Expiration 21

23 Congratulations, you own a Call Option in AAPL! We ve made the trade, now what? Do I have to hold the option until expiration? Absolutely not! Suppose the following scenario occurs: Stock quickly moves up to 123 on activist shareholder Icahn comments about adding to position on strength. What is my option worth at 123 two weeks after initial purchase? Option is now In the Money, & tracking the stock more closely. We will discuss this in Option Boot Camp Part IV The Greeks. Suppose the option has appreciated $3.00 in this move from purchase price of $7.20 to $ Ask yourself, have you achieved your profit objective? $3.00 / $7.20 = 45% Return Suppose you want to hold the option until expiration AAPL has to close above to profit on the trade. Breakeven = Strike Price + Debit 22

24 It s been a long evening. Let s wrap it up. Here s what we ve introduced today: What is a call option? Underlying Security, Strike Price, Expiration Period, Credit/Debit Components of an Option Call Buying vs. Call Selling We focused on Call Buying today, and will get into more detail on Call Selling later in boot camp. In the Money vs. Out of the Money vs. At the Money Extrinsic vs. Intrinsic Value Closing Remarks 23

25 Upcoming Sessions Feb 2 nd, 2015: Intro to the Put Option Feb 5 th, 2015: Intro to the Greeks Delta, Theta, Gamma, Rho, Vega, etc. Later in February Building on introductory call options Building on introductory put options Introduction to options strategies spreads, butterflies, condors, covered writes, etc. 24

Trading Debit Spreads. Peter Lusk. Instructor The Options Institute at CBOE

Trading Debit Spreads. Peter Lusk. Instructor The Options Institute at CBOE Trading Debit Spreads Peter Lusk Instructor The Options Institute at CBOE Disclosures In order to simplify the computations, commissions have not been included in the examples used in these materials.

More information

Finance 436 Futures and Options Review Notes for Final Exam. Chapter 9

Finance 436 Futures and Options Review Notes for Final Exam. Chapter 9 Finance 436 Futures and Options Review Notes for Final Exam Chapter 9 1. Options: call options vs. put options, American options vs. European options 2. Characteristics: option premium, option type, underlying

More information

FINANCIAL ENGINEERING CLUB TRADING 201

FINANCIAL ENGINEERING CLUB TRADING 201 FINANCIAL ENGINEERING CLUB TRADING 201 STOCK PRICING It s all about volatility Volatility is the measure of how much a stock moves The implied volatility (IV) of a stock represents a 1 standard deviation

More information

Volatility as an indicator of Supply and Demand for the Option. the price of a stock expressed as a decimal or percentage.

Volatility as an indicator of Supply and Demand for the Option. the price of a stock expressed as a decimal or percentage. Option Greeks - Evaluating Option Price Sensitivity to: Price Changes to the Stock Time to Expiration Alterations in Interest Rates Volatility as an indicator of Supply and Demand for the Option Different

More information

How To Understand The Greeks

How To Understand The Greeks ETF Trend Trading Option Basics Part Two The Greeks Option Basics Separate Sections 1. Option Basics 2. The Greeks 3. Pricing 4. Types of Option Trades The Greeks A simple perspective on the 5 Greeks 1.

More information

Underlier Filters Category Data Field Description

Underlier Filters Category Data Field Description Price//Capitalization Market Capitalization The market price of an entire company, calculated by multiplying the number of shares outstanding by the price per share. Market Capitalization is not applicable

More information

Swing Trade Warrior Chapter 1. Introduction to swing trading and how to understand and use options How does Swing Trading Work? The idea behind swing trading is to capitalize on short term moves of stocks

More information

Don t be Intimidated by the Greeks, Part 2 August 29, 2013 Joe Burgoyne, OIC

Don t be Intimidated by the Greeks, Part 2 August 29, 2013 Joe Burgoyne, OIC Don t be Intimidated by the Greeks, Part 2 August 29, 2013 Joe Burgoyne, OIC www.optionseducation.org 2 The Options Industry Council Options involve risks and are not suitable for everyone. Prior to buying

More information

Buying Equity Call Options

Buying Equity Call Options Buying Equity Call Options Presented by The Options Industry Council 1-888-OPTIONS Equity Call Options Options involve risks and are not suitable for everyone. Prior to buying or selling options, an investor

More information

Class 5: Options Trading - Part 2 Trading Options Like Stock. Review Basic Options. Right to buy stock @ certain price

Class 5: Options Trading - Part 2 Trading Options Like Stock. Review Basic Options. Right to buy stock @ certain price Today s Class Review basic options Trading options like stock Class 5: Options Trading - Part 2 Trading Options Like Stock How options prices move with stock Choosing the right options Stock Option Basics

More information

FINANCIAL ENGINEERING CLUB TRADING 101

FINANCIAL ENGINEERING CLUB TRADING 101 FINANCIAL ENGINEERING CLUB TRADING 101 WHAT IS TRADING TRADING/INVESTING is the act of putting capital to use, by either buying or selling securities, for the purpose of gaining profits. Buy low, sell

More information

Introduction to Options

Introduction to Options Introduction to Options By: Peter Findley and Sreesha Vaman Investment Analysis Group What Is An Option? One contract is the right to buy or sell 100 shares The price of the option depends on the price

More information

Option Theory Basics

Option Theory Basics Option Basics What is an Option? Option Theory Basics An option is a traded security that is a derivative product. By derivative product we mean that it is a product whose value is based upon, or derived

More information

Hedging. An Undergraduate Introduction to Financial Mathematics. J. Robert Buchanan. J. Robert Buchanan Hedging

Hedging. An Undergraduate Introduction to Financial Mathematics. J. Robert Buchanan. J. Robert Buchanan Hedging Hedging An Undergraduate Introduction to Financial Mathematics J. Robert Buchanan 2010 Introduction Definition Hedging is the practice of making a portfolio of investments less sensitive to changes in

More information

Chapter 3.4. Forex Options

Chapter 3.4. Forex Options Chapter 3.4 Forex Options 0 Contents FOREX OPTIONS Forex options are the next frontier in forex trading. Forex options give you just what their name suggests: options in your forex trading. If you have

More information

For example, someone paid $3.67 per share (or $367 plus fees total) for the right to buy 100 shares of IBM for $180 on or before November 18, 2011

For example, someone paid $3.67 per share (or $367 plus fees total) for the right to buy 100 shares of IBM for $180 on or before November 18, 2011 Chapter 7 - Put and Call Options written for Economics 104 Financial Economics by Prof Gary R. Evans First edition 1995, this edition September 24, 2011 Gary R. Evans This is an effort to explain puts

More information

Options: How About Wealth & Income? I Really Don t Care Which Way the Market Goes!

Options: How About Wealth & Income? I Really Don t Care Which Way the Market Goes! Options: How About Wealth & Income? I Really Don t Care Which Way the Market Goes! Disclaimer U.S. GOVERNMENT REQUIRED DISCLAIMER COMMODITY FUTURES TRADING COMMISSION FUTURES AND OPTIONS TRADING HAS LARGE

More information

Guide to Options Strategies

Guide to Options Strategies RECOGNIA S Guide to Options Strategies A breakdown of key options strategies to help you better understand the characteristics and implications of each Recognia s Guide to Options Strategies 1 3 Buying

More information

Clear and Simple Option Strategy PRESENTED BY: DENNIS W. WILBORN

Clear and Simple Option Strategy PRESENTED BY: DENNIS W. WILBORN Clear and Simple Option Strategy PRESENTED BY: DENNIS W. WILBORN Disclaimer U.S. GOVERNMENT REQUIRED DISCLAIMER COMMODITY FUTURES TRADING COMMISSION FUTURES AND OPTIONS TRADING HAS LARGE POTENTIAL REWARDS,

More information

Buying Call or Long Call. Unlimited Profit Potential

Buying Call or Long Call. Unlimited Profit Potential Options Basis 1 An Investor can use options to achieve a number of different things depending on the strategy the investor employs. Novice option traders will be allowed to buy calls and puts, to anticipate

More information

Derivatives: Options

Derivatives: Options Derivatives: Options Call Option: The right, but not the obligation, to buy an asset at a specified exercise (or, strike) price on or before a specified date. Put Option: The right, but not the obligation,

More information

WHS FX options guide. Getting started with FX options. Predict the trend in currency markets or hedge your positions with FX options.

WHS FX options guide. Getting started with FX options. Predict the trend in currency markets or hedge your positions with FX options. Getting started with FX options WHS FX options guide Predict the trend in currency markets or hedge your positions with FX options. Refine your trading style and your market outlook. Learn how FX options

More information

Pairs Trading STRATEGIES

Pairs Trading STRATEGIES Pairs Trading Pairs trading refers to opposite positions in two different stocks or indices, that is, a long (bullish) position in one stock and another short (bearish) position in another stock. The objective

More information

Option Basics: A Crash Course in Option Mechanics

Option Basics: A Crash Course in Option Mechanics 1 chapter # 1 Option Basics: A Crash Course in Option Mechanics The concept of options has been around for a long time. Ancient Romans, Greeks, and Phoenicians traded options based on outgoing cargoes

More information

Week 13 Introduction to the Greeks and Portfolio Management:

Week 13 Introduction to the Greeks and Portfolio Management: Week 13 Introduction to the Greeks and Portfolio Management: Hull, Ch. 17; Poitras, Ch.9: I, IIA, IIB, III. 1 Introduction to the Greeks and Portfolio Management Objective: To explain how derivative portfolios

More information

A Blueprint To Profitable Options Trading

A Blueprint To Profitable Options Trading You re In The Right Place If A Blueprint To Profitable Options Trading A Beginner s Guide To Success 1. You know you SHOULD be using options in your investing but you re not sure what to do. 2. You re

More information

Wednesday, September 25, 13. Trading Apple Algos Using Weekly Options

Wednesday, September 25, 13. Trading Apple Algos Using Weekly Options Trading Apple Algos Using Weekly Options Using Options with Signals Trade Signals provide a definitive edge Options allow us to taylor our risk Time decay adds juice to this edge Primary Strategy During

More information

Option pricing in detail

Option pricing in detail Course #: Title Module 2 Option pricing in detail Topic 1: Influences on option prices - recap... 3 Which stock to buy?... 3 Intrinsic value and time value... 3 Influences on option premiums... 4 Option

More information

An Option In the security market, an option gives the holder the right to buy or sell a stock (or index of stocks) at a specified price ( strike

An Option In the security market, an option gives the holder the right to buy or sell a stock (or index of stocks) at a specified price ( strike Reading: Chapter 17 An Option In the security market, an option gives the holder the right to buy or sell a stock (or index of stocks) at a specified price ( strike price) within a specified time period.

More information

Steve Meizinger. FX Options Pricing, what does it Mean?

Steve Meizinger. FX Options Pricing, what does it Mean? Steve Meizinger FX Options Pricing, what does it Mean? For the sake of simplicity, the examples that follow do not take into consideration commissions and other transaction fees, tax considerations, or

More information

Options Strategies. 26 proven options strategies

Options Strategies. 26 proven options strategies asx 267_cover 25/8/9 1:32 PM Page 2 Options Strategies 26 proven options strategies Information line: 131 279 www.asx.com.au HOW TO USE THIS BOOKLET This brochure details more than two dozen strategies

More information

Chapter 5: Foreign Currency Options. Definitions

Chapter 5: Foreign Currency Options. Definitions Chapter 5: Foreign Currency Options Overview 1. Definitions 2. Markets for Options 3. Speculation with Options 4. Option Pricing and Valuation (as time permits.) Suggested Problems & Exercises: All 1 de

More information

http://www.infinity100.com

http://www.infinity100.com http://www.infinity100.com THE GREEKS MANAGING AND PROFITING FROM DELTA, VEGA, THETA, GAMMA RISK THE 'GREEKS' RISK MANGEMENT GRID Line Max Profit? * VEGA POSITION 1 Long Vega 2 3, 4 Short Vega Long Vega

More information

11 Option. Payoffs and Option Strategies. Answers to Questions and Problems

11 Option. Payoffs and Option Strategies. Answers to Questions and Problems 11 Option Payoffs and Option Strategies Answers to Questions and Problems 1. Consider a call option with an exercise price of $80 and a cost of $5. Graph the profits and losses at expiration for various

More information

INTRODUCTION TO WEEKLY OPTIONS

INTRODUCTION TO WEEKLY OPTIONS INTRODUCTION TO WEEKLY OPTIONS Kerry W. Given, Ph.D. (Dr. Duke) Parkwood Capital, LLC Weekly options have grown dramatically in popularity over the past year or two. In one sense, you could say weekly

More information

Options CHAPTER 7 INTRODUCTION OPTION CLASSIFICATION

Options CHAPTER 7 INTRODUCTION OPTION CLASSIFICATION CHAPTER 7 Options INTRODUCTION An option is a contract between two parties that determines the time and price at which a stock may be bought or sold. The two parties to the contract are the buyer and the

More information

Return to Risk Limited website: www.risklimited.com. Overview of Options An Introduction

Return to Risk Limited website: www.risklimited.com. Overview of Options An Introduction Return to Risk Limited website: www.risklimited.com Overview of Options An Introduction Options Definition The right, but not the obligation, to enter into a transaction [buy or sell] at a pre-agreed price,

More information

b. June expiration: 95-23 = 95 + 23/32 % = 95.71875% or.9571875.9571875 X $100,000 = $95,718.75.

b. June expiration: 95-23 = 95 + 23/32 % = 95.71875% or.9571875.9571875 X $100,000 = $95,718.75. ANSWERS FOR FINANCIAL RISK MANAGEMENT A. 2-4 Value of T-bond Futures Contracts a. March expiration: The settle price is stated as a percentage of the face value of the bond with the final "27" being read

More information

central Options An Opportunistic Options Combo for QQQ, the Nasdaq 100 Index ETF www.888 options.com By Steve Ciccarello

central Options An Opportunistic Options Combo for QQQ, the Nasdaq 100 Index ETF www.888 options.com By Steve Ciccarello www.888 options.com YOUR RESOURCE FOR OPTIONS EDUCATION SM Options central IN THIS W I N T E R 2 0 0 2 ISSUE: F E A T U R E : A N O P P O R T U N I S T I C O P T I O N S C O M B O F O R Q Q Q W I N T E

More information

OPTIONS EDUCATION GLOBAL

OPTIONS EDUCATION GLOBAL OPTIONS EDUCATION GLOBAL TABLE OF CONTENTS Introduction What are FX Options? Trading 101 ITM, ATM and OTM Options Trading Strategies Glossary Contact Information 3 5 6 8 9 10 16 HIGH RISK WARNING: Before

More information

TABLE OF CONTENTS. Introduction Delta Delta as Hedge Ratio Gamma Other Letters Appendix

TABLE OF CONTENTS. Introduction Delta Delta as Hedge Ratio Gamma Other Letters Appendix GLOBAL TABLE OF CONTENTS Introduction Delta Delta as Hedge Ratio Gamma Other Letters Appendix 3 4 5 7 9 10 HIGH RISK WARNING: Before you decide to trade either foreign currency ( Forex ) or options, carefully

More information

Answers to Concepts in Review

Answers to Concepts in Review Answers to Concepts in Review 1. Puts and calls are negotiable options issued in bearer form that allow the holder to sell (put) or buy (call) a stipulated amount of a specific security/financial asset,

More information

Pair Trading with Options

Pair Trading with Options Pair Trading with Options Jeff Donaldson, Ph.D., CFA University of Tampa Donald Flagg, Ph.D. University of Tampa Ashley Northrup University of Tampa Student Type of Research: Pedagogy Disciplines of Interest:

More information

Steve Meizinger. Understanding the FX Option Greeks

Steve Meizinger. Understanding the FX Option Greeks Steve Meizinger Understanding the FX Option Greeks For the sake of simplicity, the examples that follow do not take into consideration commissions and other transaction fees, tax considerations, or margin

More information

6. Foreign Currency Options

6. Foreign Currency Options 6. Foreign Currency Options So far, we have studied contracts whose payoffs are contingent on the spot rate (foreign currency forward and foreign currency futures). he payoffs from these instruments are

More information

The Greeks Vega. Outline: Explanation of the greeks. Using greeks for short term prediction. How to find vega. Factors influencing vega.

The Greeks Vega. Outline: Explanation of the greeks. Using greeks for short term prediction. How to find vega. Factors influencing vega. The Greeks Vega 1 1 The Greeks Vega Outline: Explanation of the greeks. Using greeks for short term prediction. How to find vega. Factors influencing vega. 2 Outline continued: Using greeks to shield your

More information

The Four Basic Options Strategies

The Four Basic Options Strategies 1 The Four Basic Options Strategies Introduction The easiest way to learn options is with pictures so that you can begin to piece together strategies step-by-step. However, first we need to understand

More information

Options: Valuation and (No) Arbitrage

Options: Valuation and (No) Arbitrage Prof. Alex Shapiro Lecture Notes 15 Options: Valuation and (No) Arbitrage I. Readings and Suggested Practice Problems II. Introduction: Objectives and Notation III. No Arbitrage Pricing Bound IV. The Binomial

More information

Online Appendix: Payoff Diagrams for Futures and Options

Online Appendix: Payoff Diagrams for Futures and Options Online Appendix: Diagrams for Futures and Options As we have seen, derivatives provide a set of future payoffs based on the price of the underlying asset. We discussed how derivatives can be mixed and

More information

Put-Call Parity and Synthetics

Put-Call Parity and Synthetics Courtesy of Market Taker Mentoring LLC TM Excerpt from Trading Option Greeks, by Dan Passarelli Chapter 6 Put-Call Parity and Synthetics In order to understand more-complex spread strategies involving

More information

www.optionseducation.org OIC Options on ETFs

www.optionseducation.org OIC Options on ETFs www.optionseducation.org Options on ETFs 1 The Options Industry Council For the sake of simplicity, the examples that follow do not take into consideration commissions and other transaction fees, tax considerations,

More information

1 Volatility Trading Strategies

1 Volatility Trading Strategies Brunel University Msc., EC5504, Financial Engineering Prof Menelaos Karanasos Lecture Notes: Volatility Trading Strategies 1 Volatility Trading Strategies As previously explained, volatility is essentially

More information

Table of Contents. Make Money Trading Options Top-15 Option Trading Strategies. RLCG Management LLC All Rights Reserved Page 2

Table of Contents. Make Money Trading Options Top-15 Option Trading Strategies. RLCG Management LLC All Rights Reserved Page 2 Table of Contents Introduction: Why Trade Options?... 3 Strategy #1: Buy-Write or Covered Call... 4 Strategy #2: Sell-Write or Covered Put... 5 Strategy #3: Protective Put... 6 Strategy #4: Collar... 7

More information

INTRODUCTION TO OPTIONS MARKETS QUESTIONS

INTRODUCTION TO OPTIONS MARKETS QUESTIONS INTRODUCTION TO OPTIONS MARKETS QUESTIONS 1. What is the difference between a put option and a call option? 2. What is the difference between an American option and a European option? 3. Why does an option

More information

Beginner s Guide to Stock Options

Beginner s Guide to Stock Options Beginner s Guide to Stock Options Chapters 1.1-1.7 www.trader.ge Stock Options Chapter 1.1 / Introduction Introduction Welcome to this Academy introduction to stock options course. In this course, we will

More information

Who Should Consider Using Covered Calls?

Who Should Consider Using Covered Calls? Who Should Consider Using Covered Calls? An investor who is neutral to moderately bullish on some of the equities in his portfolio. An investor who is willing to limit upside potential in exchange for

More information

ETF Options. Presented by The Options Industry Council 1-888-OPTIONS

ETF Options. Presented by The Options Industry Council 1-888-OPTIONS ETF Options Presented by The Options Industry Council 1-888-OPTIONS ETF Options Options involve risks and are not suitable for everyone. Prior to buying or selling options, an investor must receive a copy

More information

OPTIONS MARKETS AND VALUATIONS (CHAPTERS 16 & 17)

OPTIONS MARKETS AND VALUATIONS (CHAPTERS 16 & 17) OPTIONS MARKETS AND VALUATIONS (CHAPTERS 16 & 17) WHAT ARE OPTIONS? Derivative securities whose values are derived from the values of the underlying securities. Stock options quotations from WSJ. A call

More information

Options Pricing. This is sometimes referred to as the intrinsic value of the option.

Options Pricing. This is sometimes referred to as the intrinsic value of the option. Options Pricing We will use the example of a call option in discussing the pricing issue. Later, we will turn our attention to the Put-Call Parity Relationship. I. Preliminary Material Recall the payoff

More information

14 Greeks Letters and Hedging

14 Greeks Letters and Hedging ECG590I Asset Pricing. Lecture 14: Greeks Letters and Hedging 1 14 Greeks Letters and Hedging 14.1 Illustration We consider the following example through out this section. A financial institution sold

More information

Implied Volatility and Profit vs. Loss. Presented by The Options Industry Council

Implied Volatility and Profit vs. Loss. Presented by The Options Industry Council Implied Volatility and Profit vs. Loss Presented by The Options Industry Council Implied Volatility and Profit vs. Loss Options involve risks and are not suitable for everyone. Prior to buying or selling

More information

LEAPS LONG-TERM EQUITY ANTICIPATION SECURITIES

LEAPS LONG-TERM EQUITY ANTICIPATION SECURITIES LEAPS LONG-TERM EQUITY ANTICIPATION SECURITIES The Options Industry Council (OIC) is a non-profit association created to educate the investing public and brokers about the benefits and risks of exchange-traded

More information

PDS TRADER MANUAL. Instructions for using the Payday Stocks Trader software. 2013 Quantum Trading Technologies. PDS Trader Manual 1

PDS TRADER MANUAL. Instructions for using the Payday Stocks Trader software. 2013 Quantum Trading Technologies. PDS Trader Manual 1 PDS TRADER MANUAL Instructions for using the Payday Stocks Trader software 2013 Quantum Trading Technologies PDS Trader Manual 1 CONTENTS Getting Started 3 Log in to the PDS Trader 3 Retrieving Market

More information

Introduction to Options -- The Basics

Introduction to Options -- The Basics Introduction to Options -- The Basics Dec. 8 th, 2015 Fidelity Brokerage Services, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917. 2015 FMR LLC. All rights reserved. 744692.1.0 Disclosures Options

More information

What You Must Know About Option Spread Trading. ETFs. The Lower Risk Strategy Offering Big Potential Gains

What You Must Know About Option Spread Trading. ETFs. The Lower Risk Strategy Offering Big Potential Gains What You Must Know About Option Spread Trading ETFs The Lower Risk Strategy Offering Big Potential Gains What You Must Know About Option Spread Trading The Lower Risk Trading Strategy Offering Big Potential

More information

WELCOME TO FXDD S RANGE & TARGET OPTIONS STRATEGY GUIDE

WELCOME TO FXDD S RANGE & TARGET OPTIONS STRATEGY GUIDE GLOBAL INTRODUCTION WELCOME TO FXDD S RANGE & TARGET OPTIONS STRATEGY GUIDE Range & target options strategies are options strategies that are designed to help traders profi t when the underlying exchange

More information

metals products Options Strategy Guide for Metals Products

metals products Options Strategy Guide for Metals Products metals products Options Guide for Metals Products As the world s largest and most diverse derivatives marketplace, CME Group is where the world comes to manage risk. CME Group exchanges CME, CBOT, NYMEX

More information

Figure S9.1 Profit from long position in Problem 9.9

Figure S9.1 Profit from long position in Problem 9.9 Problem 9.9 Suppose that a European call option to buy a share for $100.00 costs $5.00 and is held until maturity. Under what circumstances will the holder of the option make a profit? Under what circumstances

More information

THE EQUITY OPTIONS STRATEGY GUIDE

THE EQUITY OPTIONS STRATEGY GUIDE THE EQUITY OPTIONS STRATEGY GUIDE APRIL 2003 Table of Contents Introduction 2 Option Terms and Concepts 4 What is an Option? 4 Long 4 Short 4 Open 4 Close 5 Leverage and Risk 5 In-the-money, At-the-money,

More information

Lecture 11: The Greeks and Risk Management

Lecture 11: The Greeks and Risk Management Lecture 11: The Greeks and Risk Management This lecture studies market risk management from the perspective of an options trader. First, we show how to describe the risk characteristics of derivatives.

More information

More and more people are now including options in their investments as a smart way to get ahead of the market.

More and more people are now including options in their investments as a smart way to get ahead of the market. Introduction Welcome Congratulations on getting started with the Options Trader. Did you know that in spite of all the turmoil in the financial markets as of late (or partly maybe because of it), the growth

More information

GAMMA.0279 THETA 8.9173 VEGA 9.9144 RHO 3.5985

GAMMA.0279 THETA 8.9173 VEGA 9.9144 RHO 3.5985 14 Option Sensitivities and Option Hedging Answers to Questions and Problems 1. Consider Call A, with: X $70; r 0.06; T t 90 days; 0.4; and S $60. Compute the price, DELTA, GAMMA, THETA, VEGA, and RHO

More information

American Options. An Undergraduate Introduction to Financial Mathematics. J. Robert Buchanan. J. Robert Buchanan American Options

American Options. An Undergraduate Introduction to Financial Mathematics. J. Robert Buchanan. J. Robert Buchanan American Options American Options An Undergraduate Introduction to Financial Mathematics J. Robert Buchanan 2010 Early Exercise Since American style options give the holder the same rights as European style options plus

More information

VANILLA OPTIONS MANUAL

VANILLA OPTIONS MANUAL VANILLA OPTIONS MANUAL BALANCE YOUR RISK WITH OPTIONS Blue Capital Markets Limited 2013. All rights reserved. Content Part A The what and why of options 1 Types of options: Profit and loss scenarios 2

More information

Option Premium = Intrinsic. Speculative Value. Value

Option Premium = Intrinsic. Speculative Value. Value Chapters 4/ Part Options: Basic Concepts Options Call Options Put Options Selling Options Reading The Wall Street Journal Combinations of Options Valuing Options An Option-Pricing Formula Investment in

More information

INDEPENDENT. OBJECTIVE. RELIABLE. Options Basics & Essentials: The Beginners Guide to Trading Gold & Silver Options

INDEPENDENT. OBJECTIVE. RELIABLE. Options Basics & Essentials: The Beginners Guide to Trading Gold & Silver Options INDEPENDENT. OBJECTIVE. RELIABLE. 1 About the ebook Creator Drew Rathgeber is a senior broker at Daniels Trading. He has been heavily involved in numerous facets of the silver & gold community for over

More information

The SPX Size Advantage

The SPX Size Advantage SPX (SM) vs. SPY Advantage Series- Part II The SPX Size Advantage September 18, 2013 Presented by Marty Kearney @MartyKearney Disclosures Options involve risks and are not suitable for all investors. Prior

More information

Dimensions Trading Lab. 2004. Sean Tseng. Trading Greeks. Greeks based trading strategies. Sean Tseng s presentation

Dimensions Trading Lab. 2004. Sean Tseng. Trading Greeks. Greeks based trading strategies. Sean Tseng s presentation Trading Greeks Greeks based trading strategies Position and Greeks position Delta Gamma Theta Vega Long + 0 0 0 Short - 0 0 0 Long call + (0 to 1) + - + Long put Short call - (-1 to 0) + - + - (0 to 1)

More information

FX, Derivatives and DCM workshop I. Introduction to Options

FX, Derivatives and DCM workshop I. Introduction to Options Introduction to Options What is a Currency Option Contract? A financial agreement giving the buyer the right (but not the obligation) to buy/sell a specified amount of currency at a specified rate on a

More information

Geoff Considine, Ph.D.

Geoff Considine, Ph.D. Google Employee Stock Options: A Case Study Geoff Considine, Ph.D. Copyright Quantext, Inc. 2007 1 Employee stock option grants are available to roughly 15% of white collar worker in companies with 100

More information

Sensex Realized Volatility Index

Sensex Realized Volatility Index Sensex Realized Volatility Index Introduction: Volatility modelling has traditionally relied on complex econometric procedures in order to accommodate the inherent latent character of volatility. Realized

More information

Option pricing. Module 3

Option pricing. Module 3 Course #: Title Module 3 Option pricing Topic 1: Intrinsic value and time value... 3 Intrinsic value... 3 In-the-money, out-of-the-money, at-the-money... 3 Time value... 4 Topic 2: What affects an option's

More information

Underlying (S) The asset, which the option buyer has the right to buy or sell. Notation: S or S t = S(t)

Underlying (S) The asset, which the option buyer has the right to buy or sell. Notation: S or S t = S(t) INTRODUCTION TO OPTIONS Readings: Hull, Chapters 8, 9, and 10 Part I. Options Basics Options Lexicon Options Payoffs (Payoff diagrams) Calls and Puts as two halves of a forward contract: the Put-Call-Forward

More information

Determining Option Price. Target Price, Strike Price, Option Premium!

Determining Option Price. Target Price, Strike Price, Option Premium! Determining Option Price Target Price, Strike Price, Option Premium! Decide on Strategy Direction, magnitude, risk! Up! Buy Calls! or! Sell Puts! or! Combo! Direction! Down! Buy Puts! or! Sell Calls! or!

More information

BONUS REPORT#5. The Sell-Write Strategy

BONUS REPORT#5. The Sell-Write Strategy BONUS REPORT#5 The Sell-Write Strategy 1 The Sell-Write or Covered Put Strategy Many investors and traders would assume that the covered put or sellwrite strategy is the opposite strategy of the covered

More information

understanding options

understanding options Investment Planning understanding options Get acquainted with this versatile investment tool. Understanding Options This brochure discusses the basic concepts of options: what they are, common investment

More information

Copyright 2009 by National Stock Exchange of India Ltd. (NSE) Exchange Plaza, Bandra Kurla Complex, Bandra (East), Mumbai 400 051 INDIA

Copyright 2009 by National Stock Exchange of India Ltd. (NSE) Exchange Plaza, Bandra Kurla Complex, Bandra (East), Mumbai 400 051 INDIA Copyright 2009 by National Stock Exchange of India Ltd. (NSE) Exchange Plaza, Bandra Kurla Complex, Bandra (East), Mumbai 400 051 INDIA All content included in this book, such as text, graphics, logos,

More information

Complete Options Trading Program

Complete Options Trading Program TradeWithOptions.com Replace Your Income with TRADING PROFITS Complete Options Trading Program www.tradewithoptions.com Table of Contents Option Basics 6 1. Approach to Profitable Options Trading 7 2.

More information

Risk Management and Governance Hedging with Derivatives. Prof. Hugues Pirotte

Risk Management and Governance Hedging with Derivatives. Prof. Hugues Pirotte Risk Management and Governance Hedging with Derivatives Prof. Hugues Pirotte Several slides based on Risk Management and Financial Institutions, e, Chapter 6, Copyright John C. Hull 009 Why Manage Risks?

More information

Basics of Spreading: Butterflies and Condors

Basics of Spreading: Butterflies and Condors 1 of 31 Basics of Spreading: Butterflies and Condors What is a Spread? Review the links below for detailed information. Terms and Characterizations: Part 1 Download What is a Spread? Download: Butterflies

More information

Trading Options with TradeStation OptionStation

Trading Options with TradeStation OptionStation Trading Options with TradeStation OptionStation michael burke Trading Options with TradeStation OptionStation contents Prologue...1 The Benefits of Trading Options...3 Flexibility...3 Options Trading

More information

CHAPTER 20: OPTIONS MARKETS: INTRODUCTION

CHAPTER 20: OPTIONS MARKETS: INTRODUCTION CHAPTER 20: OPTIONS MARKETS: INTRODUCTION PROBLEM SETS 1. Options provide numerous opportunities to modify the risk profile of a portfolio. The simplest example of an option strategy that increases risk

More information

Chapters 15. Delta Hedging with Black-Scholes Model. Joel R. Barber. Department of Finance. Florida International University.

Chapters 15. Delta Hedging with Black-Scholes Model. Joel R. Barber. Department of Finance. Florida International University. Chapters 15 Delta Hedging with Black-Scholes Model Joel R. Barber Department of Finance Florida International University Miami, FL 33199 1 Hedging Example A bank has sold for $300,000 a European call option

More information

Trading around a position using covered calls

Trading around a position using covered calls Trading around a position using covered calls June 23, 2011 1 Trading around a position using covered calls June 23, 2011 June 23, 2011 2 Disclaimer This presentation is the creation of Roger Manzolini

More information

CHAPTER 20. Financial Options. Chapter Synopsis

CHAPTER 20. Financial Options. Chapter Synopsis CHAPTER 20 Financial Options Chapter Synopsis 20.1 Option Basics A financial option gives its owner the right, but not the obligation, to buy or sell a financial asset at a fixed price on or until a specified

More information

This assignment covers two class periods. Both assignments (Stock Option #1 and #2) are due together when Stock Option #2 is due.

This assignment covers two class periods. Both assignments (Stock Option #1 and #2) are due together when Stock Option #2 is due. FINA351, Assignment Stock Option #1 and Stock Option #2 This assignment covers two class periods. Both assignments (Stock Option #1 and #2) are due together when Stock Option #2 is due. We are covering

More information

Basic Option Trading Strategies

Basic Option Trading Strategies Basic Option Trading Strategies What is an option? Definition Option an intangible right bought or sold by a trader to control 100 shares of a security; it expires on a specific date in the future. The

More information

How to Trade Options: Strategy Building Blocks

How to Trade Options: Strategy Building Blocks How to Trade Options: Strategy Building Blocks MICHAEL BURKE Important Information and Disclosures This course is provided by TradeStation, a U.S.-based multi-asset brokerage company that seeks to serve

More information

Iron Butterfly And Condor Slices

Iron Butterfly And Condor Slices Stocks & Commodities V. 26:2 (2-26, 28, 0): Iron Butterfly And Condor Slices by Tony Saliba and Joe Corona Capturing Trend Transitions Iron Butterfly And Condor Slices This option strategy may be effective

More information

Advanced Options Strategies SAMPLE INVESTING PLANS

Advanced Options Strategies SAMPLE INVESTING PLANS Advanced Options Strategies SAMPLE INVESTING PLANS 1 Important Information Neither Investools Inc. nor any of its officers, employees, representatives, agents, or independent contractors are, in such capacities,

More information