Learn about the properties of stock options, different trading strategies for different goals, and the models used to price these financial instruments.
The sticky delta rule refers to the assumption that the implied volatility of options with a certain delta will stay the same as the underlying asset price fluctuates up or down. It is also called the volatility-by-moneyness rule, as options…
Put-call parity with continuous dividends is different from put-call parity without dividends. Dividends increase the value of the underlying asset. Thus, if you want to maintain put-call parity, you need to eliminate this effect by discounting the underlying asset’s price…
This is a basic introduction to understanding the logic behind the one-step binomial model. We won’t be going deep on the algebra. This overview of the binomial option pricing model will help you understand the: Binomial trees widely used to…
Options are financial derivatives traded over 40 million times every day. Knowing that, you may be wondering… What’s all the fuss about? Calls? Puts? Strike price? In-the-money? OTM? Intrinsic value? Premium? What does all this jargon mean? In this article,…
Options are financial derivatives that allow you to hedge the risk of an existing position, or speculate on the price movements of a stock. There are many option strategies you can use to achieve different goals. In this post, we’ll…
A European Put Option gives you the right to sell a stock at a predetermined price at a future date. You must pay a certain price to have access to this right. What’s the maximum that price can reach, and…