CADENAS GROUP Flashcards
it allows you to buy a given asset at a certain exercise
price
OPTION
it is an important variable to understand when entering into an options contract.
CONTRACT SIZE
the day on which all unexercised options in a particular series expire and is the last day of trading for that particular series.
EXPIRY DAY
the anchor price at which the two parties (buyer and seller) agree to enter into an option agreement
STRIKE PRICE
the money required to be paid by the option buyer to the option seller
PREMIUM
is arrived at by the negotiation between the taker and the writer of the option
PREMIUM PRICE
is the type of option that gives the option holder (buyer) the right to buy the underlying asset at a particular price which is fixed (strike) for that particular time frame (expiration date).
CALL OPTION
type of option that gives the right in the hands of the buyer to sell the underlying security by a particular date for the strike price, but he is NOT obligated to do so.
PUT OPTIONS
it displays the underlying stock price movements using a discrete-time binomial lattice (tree) framework
BINOMIAL OPTION PRICING MODEL
generally measure the sensitivity of the option price to various parameters that impact the value of an option.
OPTION GREEKS
measures the rate of change of options premium based on the directional movement of the underlying
DELTA
rate of change of delta itself
GAMMA
rate of change of premium based on change in volatility
VEGA
measures the impact on premium based on time left for expiry
THETA
measures the sensitivity of the interest rate on the value
RHO
an option’s time value is also highly dependent on the _______ the market expects the stock to display up to expiration.
VOLATILITY
one of the metrics used to measure volatile stocks
BETA
measures volatility of a stock when compared to the overall market
BETA
helps you determine the possible magnitude of future moves of the underlying stock
HISTORICAL VOLATILITY (HV )
is what is implied by the current market prices and is used with theoretical models
IMPLIED VOLATILITY
it helps set the current price of an existing option and helps options players assess the potential of a trade
IMPLIED VOLATILITY
the one that allows you to acquire the asset at no cost
most valuable option
contract size is ______ .
STANDARDIZED
is the predetermined buying or selling price for the underlying shares if the option is exercised
exercise price
Options have a limited life span and expire on standard expiry days set by Exchange
EXPIRY DATE
The best-known options pricing method. The model’s formula is derived by multiplying the stock price by the cumulative standard normal probability distribution function.
THE BLACK-SCHOLES MODEL
