This is a spread where the premium received from selling part of the spread is greater than the premium paid for the other part of the spread.
For instance, if you sold the AAPL 140.00 Calls @ 4.00 and bought the AAPL 142.00 Calls for 2.00 you have a credit of 2.00.
See also Bear Call Spread, Bear Put Spread, Calendar Spread etc
Time value is whatever the premium of the option is in addition to its intrinsic value. Time value is that part of the premium that reflects the time remaining before expiration. An American-style option may ordinarily be expected to trade for no less than its intrinsic value prior to its expiration, although occasionally an American-style…
There are some options settle for cash rather than shares. Indexes like the S&P 500 Index (.SPX) and the S&P 100 Index (.OEX) are examples of cash settled options.
This is when you enter into a position by purchasing one part of the spread at a time rather than buying it all at once. Legging can improve the risk-reward of the trade if the underlying stock moves in the right direction. If not, it can reduce the potential loss.
This is the difference between the current bid price and the current asking, or offering price. For example, if you see a quote that looks like this: 2.05 x 3.10 – what this means is that the bid is 2.05 and the ask is 3.10. Therefore the bid-ask thread is 1.05 i.e the difference between…
This is basically a combination of Bull Spread and Bear Spread. The main feature of this strategy us that your risk is fixed and your upside/profit is capped. Selling options with the same strike price and also buying options with the same expiration months, but higher and lower strike prices. Generally, the butterfly is in…
This is the idea that says that the price of the underlying asset will gravitate towards the point where the most options expire worthless. Some option traders will “trade around” or “trade off of” these levels by Selling Puts or Calls against it.
