Covered Call One of the best-known options strategies, the covered call involves making money by selling call options on a stock you own. It’s a conservative strategy, and is not aimed at making a fortune but a regular 2% or 3% a month. Because you own the shares, the call option is ‘covered’ — you’re […]

Strategies and Techniques Exercising American Options As I mentioned above, despite the fact you can exercise American options at any time, this doesn’t necessarily work out your advantage. In fact, the only time it seems to be worthwhile is sometimes if the stock pays a dividend. I don’t mean that you should sit on the […]

The Greeks If you’re talking options amongst other traders, the Greeks may well be mentioned. These are five variables which describe the pricing sensitivities, and they’re called the Greeks because they’re known by Greek letters. They basically tell you how sensitive the option price is to changes in other numbers. Here’s a brief summary of […]

Option Pricing Pricing options is more difficult than pricing futures because it involves a transaction that may not happen. In theory, the odds of profitability are built into the premium paid, but with variable rewards there is no easy method like the cash and carry to find a fair price. You can consider the extremes. […]

Interest Rate Option An interest rate option provides a way to manage interest rate risk. If you are a buyer, you get the right to pay (for a maximum interest rate), or to receive (for a minimum interest rate) at a predetermined strike price or interest rate for a set period. If the interest rate […]

Commodity Options What happens if an agricultural producer would like to secure the price he will be paid for the future crop, but doesn’t want to commit to a futures contract in case the harvest is bad? He might have to buy additional crops in the market at the then current price to satisfy the […]

Option Types Just as with futures contracts, options can be bought on a wide variety of financial instruments, or underlying securities. In this respect, it’s just another way of trading in the financial markets, and your success will depend on your anticipation of price changes. Equity Options Possibly the simplest type of option, and the […]

American and European Styles There are two styles of options, called American and European, though that doesn’t depend where they were bought. Usually options on stock are American-style, and options on indices are European, and it is important that you know which are the basis of your trade. The difference between them is when they […]

Why Buy an Option? You can see that options provide you with a bewildering array of choices for your trading, but options only go up to a certain date, and if the underlying doesn’t change as you think it should, then the option will expire worthless. This is unlike virtually any other financial security that […]

Module 15 – Options Introduction Unlike any other trading derivative, options give you choices. If you trade in futures, contracts for difference, spread betting or any other financial derivative (a financial instrument that ‘derives’ its value from something else), you can leverage your money but you are also committed to the downside. With options you […]