In the money
An option is in-the-money when there would be profit in exercising it immediately
Out of the money
Out-of-the-money when it would be worthless if exercised immediately.
Definitions
The option price, or premium, can be considered as the sum of two specific elements: intrinsic value and time value
The intrinsic value of an option is the amount an option holder can realise by exercising the option immediately. Intrinsic value is always positive or zero. An out-of-the-money option has zero intrinsic value
Definitions
Bearish Market:
Market in which prices are generally declining and the underlying sentiment reinforces that decline.
Bullish Market:
Rising market, or a market in which further price increases are expected , due to strong demand.
Stagnated Market.
Market in which neither increases or decreases are to be expected
Definitions
The time value of an option is the value over and above intrinsic value that the market places on the option. It can be considered as the value of the continuing exposure to the movement in the underlying product price that the option provides. The price that the market puts on this time value depends on a number of factors: time to expiry, volatility of the underlying product price, risk free interest rates and expected dividends.
Strategies related to future market movement
Stock Price Up Stock Price Down Increasing
Confidence level Decreasing
Confidence level Long Put Long Call Bull Call
Spreads Bear Call
Spreads Bull Put
Spreads Bear Put
Spreads Covered
Call Writing Short Put Short Call Protective
Short stock Short Stock Long Stock Synthetic
Long Stock Synthetic
Short Stock
Strategies related to future market Volatility
Option Strategies
Single Option Strategy:
Short Call
Short Put
Long Call
Long Put
Short Call
An option strategy whereby a person sells (shorts) a Call option
Short Call
Short Put
An option strategy whereby a person sells (shorts) a put option
Short Put
Long Call
Buy a call with an exercise price of (A).
A
Long Call
Long Put
Buy a put (A).
A
Long Put
Option Strategies
Long Straddle
When to use:
If market is near A and you expect it to start moving but are not sure which way. Especially good position if market has been quiet, then starts to zigzag sharply, signalling potential eruption
Buy call, buy put of the same
strike price and month
Long Straddle
Profit possibilities : Unlimited for an increase or decrease in the underlying.
Loss possibilities : Limited to the premium paid in establishing the position. Will be greatest if the underlying is at strike A, at expiry.
Break-even: Reached if the underlying rises or falls from strike A by the same amount as the premium cost of establishing the position. A
Short Straddle
A call option and a put option are sold with the same strike price A
A
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