This is basically the level of volatility reflected in the current options prices. Each options contract has a unique level of implied volatility that is computed using an options pricing model.
The Implied Volatility (IV) is fluid and consistently changing. When the IV is high, it indicates that the option premiums are expensive. When the IV is low it generally means that the options contracts are cheap. See Historical Volatility
When an option seller or writer receives an exercise notice, assignment has occurred. When assigned, writers must deliver the goods (shares or cash). For example, let’s say you sold 1 AAPL 145.00 CALL and the buyer decides to exercise the contract at expiration because AAPL is now trading at 146, you would need to deliver…
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.
Parity is basically a set of rules of equality that exist in the options market. For example, long stock and long puts is the as owning long calls. Parity generally holds, but (all else being equal) puts will often trade at lower prices than calls due to the impact of dividends and interest rates.
This is when you put on a short option position and hedge it with another option position or with long shares. This is essentially the opposite of a naked write.
A covered call is executed when you buy the underlying stock/shares and then sell Calls against it. The trade is considered covered because the shares will cover what is now a short Call position. So this means the shorting/sale of the Calls was not “naked”. This method can be used to generate income using stock…
