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…
A Box Spread is simply a combination of two vertical spreads. These spreads are used by professional Options traders who are trying to take advantage of a situation where the cost of the spreads (both verticals) is less than what the verticals would be worth when they expire. They consider this to be a type…
This is when you sell a straddle against shares that you already own. It is important to note that the covered straddle is not really fully covered since only the calls are covered. The strategy has a bullish bias.
This method is normally used when Options are overpriced. The trader would simply buy stocks in the open market and sell the equivalent position in the options market. This is done because the trader sees that the Options price is too high and anticipates that it will eventually decrease. So he/she decides to cash in…
A binary option is a cash-settled option having only two possible payoff outcomes: either a fixed amount or nothing at all. Some binary options are referred to as “fixed return options.” As of the date this product was approved for trading, the only binary options approved for trading (other than credit default options, as defined…
Tracking Options Flow can be very useful if you know how to take advantage of it. It basically allows you to see what the big traders are doing in real time. The common thinking is that these big traders know something that others don’t and are taking a position in anticipation of a move. However,…
