|An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset. This is often employed when an investor has a short-term neutral view on the asset and for this reason hold the asset long and simultaneously have a short position via the option to generate income from the option premium. This is also known as a "buy-write".
|August 3, 2010
|A Vertical is an options trading strategy with which a trader makes a simultaneous purchase and sale of two options of the same type that have the same expiration dates but different strike prices. A Box is a dual options position involving a bull and bear spread with identical expiry dates. This investment strategy provides for minimal risk. Additionally, it can lead to an arbitrage position as an investor attempts to lock in a small return at expiry.
|August 11, 2010
|An options or futures spread established by simultaneously entering a long and short position on the same underlying asset but with different delivery months. Sometimes referred to as an interdelivery, intramarket, time or horizontal spread.
|September 9, 2010
|A financial instrument that is created artificially by simulating another instrument with the combined features of a collection of other assets.
|September 22, 2010
|An options strategy with which the investor holds a position in both a call and put with the same strike price and expiration date.
|October 6, 2010
|An options strategy where the investor holds a position in both a call and put with different strike prices but with the same maturity and underlying asset.
|October 20, 2010
|A type of options spread in which a trader holds more long positions than short positions. The premium collected from the sale of the short option is used to help finance the purchase of the long options. This type of spread enables the trader to have significant exposure to expected moves in the underlying asset while limiting the amount of loss in the event prices do not move in the direction the trader had hoped for. This spread can be created using either call options or put options.
|November 11, 2010
|An options strategy in which an investor simultaneously holds an unequal number of long and short positions. A commonly used ratio is two short options for every option purchased.
A ratio spread would be achieved by purchasing one call option with a strike price of $45 and writing two call options with a strike price of $50. This would allow the investor to capture a gain on a small upward move in the underlying stock's price. However, any move past the higher strike price ($50) of the written options will cause this position to lose value. Theoretically, an extremely large increase in the underlying stock's price can cause an unlimited loss to the investor due to the extra short call.
|December 13, 2010
|Gamma is the rate of change for delta with respect to the underlying asset's price. It measures the risk associated with the strategy. Gamma trading allows a trader to materially alter the risk-reward profile of a trade.
|January 19, 2011
|An options strategy established by simultaneously entering into a long and short position in two options of the same type (two call options or two put options) but with different strike prices and expiration dates.
|June 8, 2011
|An option strategy combining a bull and bear spread. It uses three strike prices. The lower two strike prices are used in the bull spread, and the higher strike price in the bear spread. Both puts and calls can be used.
|June 29, 2011
|Similar to a butterfly spread, a condor is an options strategy that also has a bear and a bull spread, except that the strike prices on the short call and short put are different.
|July 12, 2011