options Flashcards
perhaps the best known options pricing model
Black Scholes Model
The model’s formula is derived by multiplying the stock price by cumulative standard normal probability distribution function.
The Black Scholes Model
helps you determine the possible magnitude of future moves of underlying stock
Historical Volatility
what is implied by the current market prices and is used with theoretical models
Implied Volatility
It helps set the current market price of an existing option and helps options players assess the potential of a trade.
Implied Volatility
An option’s time value is also highly dependent on the volatility the market expects the stock to display up to expiration.
Volatility
Measures the sensitivity of the interest rate.
Rho
measures the impact on premium based on the time left for expiry
Theta
rate of change of premium on change in volatility
Vega
rate of change of delta itself
Gamma
measures the rate of change of options premium based on the directional movement of the underlying
Delta
Generally measure the sensitivity of the option price to various parameters that impact the value of an option.
Option Greeks
Displays the underlying stock price movements using a discrete time binomial lattice (tree framework)
Binomial Pricing Model
give 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
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
