An American option is an options contract that can be exercised on or before the expiry or maturity date. American options are contrasted with European options that can only be exercised on their expiry or maturity date. American Options in Trading Despite the name, the use of American options in trading is not a matter […]
Calendar spread is an options strategy that allows traders and investors to enter long and short positions simultaneously for the same underlying and strike price but different expiration dates. Option traders can utilize calendar spreads as a way to get into a long position at a cheaper price by selling the other leg and bringing […]
A day trader is a trader whose time horizon for trades is intraday, often for as little as a few seconds, but generally anywhere from a few minutes to an hour. Day traders attempt to capitalize on significant intraday price movements and volatility by executing multiple quick trades that capture some part of the overall […]
Volatility crush is a term used in options trading to describe the swift reduction in implied volatility of an option after the underlying stock’s earnings are announced or some other major news event. A volatility crush occurs because the implied volatility of options will rise before an earnings announcement when the future price path of […]
Private placement refers to a method of raising capital where select investors are invited through the offer of equity shares. Unlike an IPO where shares are made available on the open market, a private placement involves select investors like large banks, mutual funds, insurance companies and pension funds. Furthermore, the capital raising event does not […]
An option class is the set of all call or put options for sale for a given security, including every expiration date and strike price combination. Option Class in Trading The option class for any security is used as a broad metric for gauging the relative interest in that security. For example, a high volume […]
Option series refers to a group of options belonging to the same security and characterized by the same price and expiration month. It can also be defined as a set of option contracts that belong to the same class and possess the same expiration date and exercise price. A good example of an option series […]
The put-call ratio is the ratio of total trading volume of put options divided by the total trading volume of call options. For example, if the total trading volume of put options was 4 and the total trading volume of call options was 2, then the ratio would be 2. Put-Call Ratio in Trading The […]
In option trading, intrinsic value (I.V.) refers to the difference between the exercise price (strike price) and the market value of a security. Professor Benjamin Graham from Columbia is credited for having conceptualized the margin of safety concept. This happened in 1934 and resulted in the good professor introducing the idea of calculating the I.V […]
What Is Quadruple Witching? Quadruple witching is a market event where several derivatives contracts expire on the same day. The simultaneous expiration of all of these hedging products creates tons of order flow and repositioning, resulting in significant volatility and market whipsaws. It’s called quad witching because these four types of contracts expire on […]
