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...

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...

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...

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...

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...

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...

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...

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...

Summary Futures contracts are the first of the leveraged products that we are looking at in depth. They can be extremely powerful, although that power also translates as risk if you do not take sensible precautions. If you need...

Spreads Spreads are strategies that involve buying one contract and selling another. You’ll come across them again in the next module, on options, but with futures they’re a little different from those. The term...