Diagonal Spread
A Diagonal Spread is an option spread where the trader buys a longer-term option and sells a near-term option. The...
Definitions
Synthetic Put
Option traders often construct synthetic put positions to hedge their short stock positions. When you are short stock, your risk...
Synthetic Call Option
In a Synthetic Call Option, the investor can create a pseudo call position by buying puts that equal the number...
Married Puts
In a married puts option strategy, the investor owns shares of stock and purchases an equal number of put options....
4-Way Option Spread
A 4-Way Option Spread is the same as an iron condor spread. The option strategy sells an out of the...
Butterfly Spread
In a Butterfly Spreadstrategy, all of the expiration months are the same. A trader buys a call with a low...
Iron Condor Spread
An iron condor is typically a non-directional option spread where the trader sells an out of the money call spread...
Option Spread
An option spread is created when a trader simultaneously buys and sells options with different strike prices and/or expiration months....
Accelerated Time Decay
Accelerated Time Decay refers to options that have less than a month to maturity decay at an accelerated rate. As...
Time Premium Decay
Stock options are a wasting asset. From the day you purchase them, their value goes down if the stock stays...
Option Vega
An Option Vega measures the change in the price of a stock option relative to a 1% change in volatility....
Option Theta
An Option Theta measures the rate of decline in a stock option due to the passage of time. Theta can...
Option Gamma
An Option Gamma measures the change in Delta for every one dollar change in the underlying price of the stock....
Option Delta
An option delta measures the change in the price of a stock option relative to the change in the price...
Black-Scholes Option Pricing Model
The Black-Scholes Option Pricing Model is a financial model thatl was developed in 1973 by Fisher Black, Robert Merton and...
Time Value of an Option
The Time Value of an Option is the amount by which the price of a stock option exceeds its intrinsic...
Trading at a Discount
An option that is trading below its intrinsic value is trading at a discount. For instance, a $50 a call...
Stock Option Parity
Stock Option Parity means that the stock option is trading at its intrinsic value. If a $100 call option were...
Intrinsic Value
For in-the-money call options, intrinsic value is the difference between the stock price and the strike price. A $50 call...
Time Premium
A time premium is the amount by which the price of a stock option exceeds its intrinsic value. If a...
Option Premium
An option premium is the price of the stock option. It is comprised of intrinsic value and time premium. The...
Ten-up Option Market
Ten-up Option Market - Market Makers provide liquidity and they are members of the exchange. They are required to post...
Multi-Listed Stock Options
Multi-Listed Stock Optionsare stock that have options that are listed on more than one exchange. When stock options are listed...
Option Bid/Ask Spread
The Option Bid/Ask Spread is the difference between the stock option bid price and the ask price. A nickel wide...
Option Ask
An option ask is the price an option seller wants to receive for the option. If the option is fairly...