Introduction to Options Pricing
Option price or option premium is the amount per share that an option buyer pays to the seller. The premium is the price at which the contract trades. The premium is the price of the option and is paid by …
Differences between Options and Futures
Here is a comparison of some of the main differences between options and futures: Basis of Difference Options Futures 1. Meaning Options confer the right but not the obligation on buyers to buy or sell foreign currencies. Futures oblige buyers …
Advantages and Disadvantages of Options Trading
The advantages of options trading 1. Risk Management: Put options allow hedging against a possible fall in the value of shares one holds. 2. Time to Decide: By taking a call option, the purchase price for the shares is locked …
Participants in the Options Market
There are four types of participants in the options markets depending on the position they take. People who buy options are called holders, and those who sell options are called writers; furthermore, buyers are said to have long positions, and …
Types of Options
Basically, there are four types of options: Call Options In a call option, the option buyer has the right (but not the obligation) to buy the commodity at the predetermined price (in a sense, ‘call’ for the item from the …
Terminologies Used in the Options Market
Following are the terminologies of options: Stock Options Stock options are options on individual stocks. A contract gives the holder the right to buy or sell shares at the specified price. Index Options These options have the index as the …
Fundamentals of Options
An option is a contract that gives the holder the right, but not the duty, to make a specified transaction for a specified time. Alternatively, the contract may grant the other party the right, but not the obligation, to sell …
Some Other Types of Swaps
Following are some other types of swaps: Basis Rate Swaps It is a type of swap in which two parties swap variable interest rates based on different money markets. This is usually done to limit the interest-rate risk that a …
Commodity Swaps
A commodity swap is a swap where exchanged cash flows are dependent on the price of an underlying commodity. This is usually used to hedge against the price of a commodity. A commodity swap is an agreement whereby a floating …
Equity Swaps
An equity swap is a swap in which at least one party’s payments are based on the rate of return of an equity index, such as the S&P 500. The other party’s payments can be based on a fixed rate, …