Black-Scholes-Merton Model

Black-Scholes-Merton Model

Black-Scholes-Merton Model

The Black-Scholes-Merton model is a differential equation used to solve for option prices. The Black-Scholes-Merton model won a noble prize in economics. The standard BSM model is only used to price European options as it does not take into account American options because they can be exercised before maturity. (more…)
Basis Point Value

Basis Point Value

Basis Point Value

Basis points represent a unit employed to measure interest rates and other financial percentages. A basis point equals 1/100th of a single percentage point. It can be denoted as 0.01% or 0.0001 in decimal form. (more…)
Vega in Options Trading

Vega in Options Trading

Vega in Options Trading

Vega is the Greek that measures the sensitivity of an option to implied volatility; denoted by the Greek letters. It is the change in the options price for a one-point change in implied volatility. Traders usually refer to the volatility without the decimal point. Options Vega denotes the option’s price sensitivity to changes in the volatility of the underlying asset. It measures how much the option’s price changes in response to a 1% change in the implied volatility of the underlying asset. This article aims to provide an overview of Vega in Options Trading. (more…)
Foreign Exchange Swap

Foreign Exchange Swap

Foreign Exchange Swap

In 1981, the US-based company IBM and the world bank Initially enter the Foreign Exchange swap agreement with different currencies. Now the Fx Swaps are the highest trading in the forex market and continue their profits in the market share. Speculators are also used the Fx Swaps. (more…)
Strangle Strategy

Strangle Strategy

Strangle Strategy

To make it cheaper to execute the option strangle is the slight modification of the straddle. A strangle can hold both the call and put options within the same underlying asset and the same expiration date. Strangle is cheaper than the straddle because strangle can buy or sell both the call and put option at the Out-of-the-Money Strike price. It is useful when the market moves in one direction either upside or downside.  (more…)
Large-Cap Stocks

Large-Cap Stocks

Large-Cap Stocks

Large capital stocks are also known as big caps. Large-cap stocks are basically shares that trade for corporations that have a market capitalization of $10 million or more. Large-cap is a shortened version of “large market capitalization”. (more…)
Barbell Strategy

Barbell Strategy

Barbell Strategy

Options are a conditional derivative instrument that allows the buyer of the contract to buy or sell a security at a chosen price. Option buyers are charged an amount called a “premium” by the sellers. Options are divided into “call” and “put” options. In a “Call” option, the buyer of the contract purchases the right to buy the underlying asset in the future at a predetermined price called the exercise price or strike price. In a “Put” option, the buyer acquires the right to sell the underlying asset in the future at a predetermined price. (more…)
Asian Option

Asian Option (words<500)

Asian Option

An Asian option is a type of option in which the average price of the underlying asset over a period of time dictates the payoff of the option. It is different from the American or European option as in these options, the payoff depends on the price of the underlying asset at a particular point in time. They are also known as average value options.

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Implied Volatility

Implied Volatility in Options Trading

Implied Volatility in Options Trading

Implied volatility is a metric that shows the market's view of the probability of changes in a security’s price. It is used by investors to project future demand and supply. They often use it to price options contracts. What does it indicate? Implied volatility indicates the market's forecast of a probable movement in the price of a given security.  It is often employed to price options contracts. Options with high IV have higher premiums and conversely, options with lower IV have lower premiums. It is denoted by σ (sigma). (more…)
Volatility Swap

Volatility Swap

Volatility Swap

What is Swap? A Swap is an exchange of any financial instrument between two parties. It is a derivative contract. Swaps are traded only in the OTC markets and not on exchange and so are customizable. The most common swaps are interest rate swaps and currency swaps. The exchange takes place only at a predetermined time or as mentioned in the contract. (more…)