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What are options?Options are derivative contracts that derive their value from an underlying asset. They give the right to either buy or sell a set amount of an underlying asset at a predetermined price at or before the options expiration.
Why are options utilized?Options are a powerful tool for investors, they can be utilized for many different reasons including, but not limited to the following: [Read More]
What are the risks of using options? Options are investment vehicles and therefore have risks. Option buyers and sellers have different risk profiles, these profiles are outlined below: [Read More]
Are options a derivative? Option contracts are derivative instruments because their price is derived from an underlying security. Option values are based on an underlying security. [Read More]
What is option premium? Option premium is the amount of money that an investor pays or receives to buy or sell an option contract. Option premium is quoted as a dollar amount per share. [Read More]
What is a covered option sale? Covered option writers hold the underlying cash or securities to transact the option if executed by the option buyer. Investors can sell a covered put or a covered call. [Read More]
What is Delta of an option? Delta measures the change in the option price based on a $1 change in the underlying security price. Delta is the first derivative of the option value with respect to the underlying security price. [Read More]
What is Gamma of an option? Gamma measures the rate of change of Delta per $1 move in the underlying security price. Gamma is at its greatest value when an option is at the money. [Read More]
What is hedging with options? Investors utilize options to hedge their underlying assets. Hedging means the reduction of risk. [Read More]
What is speculation with options?Speculating with options is performed by many investors. Investors that speculate with options are betting on the price of the underlying moving in one direction or the other. [Read More]
What is an American option?American options have a set strike and expiration just like any other option contract. However, American options can be exercised at any point between contract issuance and expiration of the option contact. [Read More]
What is a European option?European options have a set strike and expiration just like any other option contract. However, European options cannot be exercised at any point between contract issuance and expiration of the option contact. [Read More]
What are exotic options? Exotic options are option contracts that have different payoff profiles than traditional options. Exotic options can also take the form of different products all together utilizing optionality. [Read More]
What is Vega of an option? The Vega of an option is the rate of change in the options price, caused by a 1% move in implied volatility of the underlying asset. Vega measures the change in the option price relative to the change in implied volatility. [Read More]
What is Rho of an option? Rho measures the impact of interest rates on an options price. Options with longer expirations are more impacted by interest rates than shorter expiration options. [Read More]
How do dividends effect option pricing?Securities that have cash dividends reduce their price by the respective amount of the dividend on its ex-dividend date. Therefore, because of these price reductions, securities with dividends have lower call premiums and higher put premiums. [Read More]
How do you price an option? Because options are derivative instruments their price is based on their underlying security. Option pricing is based on option pricing models and several different input variables; strike, time, dividends, underlying price, volatility, etc. [Read More]
Where can you trade options? You can trade options through many brokers. Typically, brokers make investors go through an option approval process prior to making their first option trade. [Read More]
How much money do you need to trade options? If you are purchasing options, you need enough money to pay for the option premium. If you are selling options, you need to enough money in your account to have the margin required by your broker. [Read More]
What does “in the money” mean? An option is in the money when it has intrinsic value. This means that a put option is in the money when its strike is above the current security’s price. [Read More]
What does “out of the money” mean? An out of the money option is an option that does not have intrinsic value. A call option that is out of the money has a strike above the current underlying security’s price. [Read More]
What does “at the money” mean? An at the money option is an option with a strike price that is close to the current underlying security’s price.
What are the option Greeks?Option prices often do not move in tandem with their underlying security. Therefore delta, gamma, vega, theta, rho and other variables are used to measure the sensitivity of an option price to quantifiable factors. [Read More]
What is an option’s expiration?Option expiration is the date that the option contract terminates and cannot be exercised. [Read More]
How many shares are in a typical option contract?Typically, a standard option contract contains 100 shares of the respective underlying security. [Read More]
What is the strike of an option?An options strike is the price at which the underlying security can be bought or sold. It is the agreed price between the option contract seller and buyer that the underlying security will be transacted if the option is executed. [Read More]
What is Theta of an option? Theta is the measure decay on an options price with the passage of time. Options have a time value built into their price; this value erodes as it approaches expiration. [Read More]
What is buying a call? An investor who buys a call is buying the right to purchase the underlying shares at the specific option strike. Buying a call allows investors the opportunity to participate in the underlying security’s expected appreciation during the length of the option.
What is the outlook of an investor who buys a call? An investor who purchases a call is typically bullish on the underlying security. The investors usually anticipates appreciation in the underlying security over the life of the option.
What is the maximum loss of buying a call?The maximum loss or risk from purchasing a call option is limited to the premium spent purchasing the option. The worst-case scenario is the investors holds the call option until expiration and the option is out of the money and expires worthless.
What is the maximum gain of buying a call? Theoretically a securities price can increase infinitively therefore a calls profit potential is theoretically unlimited. The call contract does not have a maximum gain ceiling.
What is the profit and loss relationship of buying a call option? A call option has unlimited profit potential and limited losses making it a very advantageous vehicle for investors. Call contracts participate in the appreciation of their underlying securities. [Read More]
What is the breakeven of buying a call contract? A long call investment can breakeven at expiration if the security price is at a value of the strike plus the option premium paid for the call. Any security price above the call premium paid plus the strike price will create a profit for the strategy.
What is the impact of volatility when buying a call? Typically, an increase in implied volatility, increase option prices. Therefore, the strategy of a long call would benefit from an increase in implied volatility all else being equal.
What is the impact of time decay (theta) when buying a call? As with most long option strategies, the passage of time has a negative impact to call option prices, all other things being equal. As time remaining to expiration reduces, the statistical chances of achieving further gains in intrinsic value shrink.
What is the assignment risk of buying a call? There is no assignment risk from buying a call.
What is the outlook of an investor who buys a put? The investor is looking for a decline in the security's price during the life of the option.
What is the max loss of an investor that is buying a put? The maximum loss is limited to the premium spent to purchase the put contract. The worst that can happen is for the security price to be above the strike price at expiration, with the put owner still holding the put position, and the put option expiring worthless.
What is the max gain of an investor buying a put? The profit potential is capped to the security going to zero, but it can be substantial. The best that can happen is for the security to become worthless.
What is the profit and loss potential of buying a put? The profit potential of a put is significant, and the losses are limited to the premium paid. The earlier and more dramatic the drop in the security's value, the better for the long-put strategy.
What is the breakeven of buying a put? At expiration, the strategy breaks even if the security price equals the strike price minus the cost of the option. Any security price below that level produces a net profit.
How does volatility impact a long put position? An increase in implied volatility would have a positive impact on this strategy. Volatility tends to boost the value of any long option strategy, because it indicates a greater mathematical probability that the security will move enough to give the option intrinsic value (or add to its current intrinsic value) by expiration day.
How does time decay impact a long put position? The passage of time has a negative impact on a long-put position. Time vale of an option erodes which put downward pressure on the put's market value.
What is the assignment risk of a long put position? There is no assignment risk for a long-put position.
What is selling a call? This strategy is when an investor writes (sells) an uncovered call option. The strategy profits if the underlying security price stays steady or declines.
What is the outlook of the investor selling a call? The investor is looking for a declining or flat security price during the life of option.
What is the maximum loss of selling a call? Theoretically the maximum loss of writing an uncovered call is unlimited. The worst scenario for the investor is if the underlying security price goes above the strike price of the call.
What is the maximum gain of selling a call? The maximum gain of selling a call is limited to the premium received by the investor. The best-case scenario is that the security price is at or below the call strike at expiration, it expire worthless, and the investor will pocket 100% of the option premium.
What is the profit and loss of selling a call? This strategy has significant risk and limited profit potential. The risk is unlimited, and the profit is capped to the premium the investor receives.
What is the breakeven of selling a call? The strategy breaks even, at expiration, if the security price is above the strike price by the amount of the premium received.
How does volatility impact a short call position? An increase in implied volatility would have a negative impact on this strategy. Implied volatility increasing will equate to the market perceiving there to be a greater chance than before of the option becoming in-the-money or more in-the-money.
How does time decay impact a short call position? Time decay is a positive factor for a short call position.
What risk of assignment does an investor have with a short call position? Uncovered short call positions face assignment risk. The call purchaser can exercise the call at any time prior to the call’s expiration.
What is selling a put? Selling a naked put is when an investor writes (sells) a put without holding the cash to purchase the shares or being short the shares. This strategy entails substantial risk for limited return.
What is the outlook of the investor that is selling a put? The investor, who writes a naked put, is anticipating the security’s price to increase or stay flat during the life of the option.
What is the maximum loss of selling a put? The maximum loss is substantial and would result in the security’s price going to zero. The worst-case scenario is if the security’s price goes to zero.
What is the maximum gain of selling a put? The maximum gain of selling a put is the premium received for the option sale. The best-case scenario is the underlying security price is above the strike price of the put at expiration.
What is the profit loss of selling a put? This strategy’s profit is limited while its risk is significant. The profit potential is capped at the premium received for selling the option.
What is the breakeven of selling a put? The strategy is at breakeven, at expiration, if the underlying security’s price is below the strike price of the option by the amount of option premium received by the sale of the contract.
How does volatility impact a short put position? Volatility has a negative impact on this strategy. An increase in volatility can raise the probability that the option will expire in the money.
How does time decay impact a short put position? Time decay is a positive factor to a short put position. As time passes the likelihood of an at-the-money or out-of-the-money put becoming in-the-money diminishes.
What is assignment risk to an investor of selling a put? The investor in a short put position does have assignment risk. The investor is obligated to purchase the shares of the put buyer at any time prior to the options expiration.
What is a protective put strategy? A protective put strategy is the combination of a long security position and long put position. The protective put’s strike establishes a price that an investors long security value cannot fall.
What is the outlook of a protective put strategy? This strategy is for an investor who is bullish on a security in the long run but is concerned about a decrease in its value in the short-term.
What is the maximum loss of a protective put strategy? The maximum loss of a protective put strategy is limited. The worst-case scenario is the underlying security drops below the strike price of put option.
What is the maximum gain of a protective put strategy? Theoretically the maximum gains on this strategy are unlimited. The investor does not cap their gains in this scenario and participates dollar for dollar in the underlying share movement.
What is the profit, loss of a protective put strategy? This strategy has unlimited upside potential and limited downside risk. The profit of this strategy is the underlying security price minus the respective investors security purchase price minus the cost of the put option.
What is the breakeven of a protective put strategy? There is no uniform method of determining this strategy’s breakeven point because it is dependent on the individual’s investors long security purchase price. However, the calculation to determine breakeven is the security price that sets the gain from the underlying to exactly the cost of the put option contract.
How does volatility impact a protect put strategy? An increase to implied volatility has neutral to slightly positive impact on a protective put strategy. Increases in implied volatility typically raise option prices.
How does time decay impact a protective put strategy? The passage of time has a negative impact on a protective put strategy. The put option price is comprised of time value, every day that passes erodes the protective puts time value.
What assignment risk does the investor have with a protective put strategy? A protective put strategy does not have any assignment risk.
What is a covered call strategy? A covered call strategy is a combination of a long security and short call on the underlying security. The quantities of the long underlying position and the short call position are equal.
What is the maximum loss of a covered call strategy? The maximum loss of a covered call strategy is substantial because of the underlying long position. The worst-case scenario is that the underlying security becomes zero.
What is the maximum gain of a covered call strategy? This strategy’s maximum gain is capped by the short call position. The maximum gain of the position is strike price of the short call position plus the premium received for the short call.
What is the profit, loss of a covered call strategy? The profit potential of this strategy is limited while the risk is substantial. The short call provides a slight hedge and income from a long security position.
What is the breakeven of a covered call strategy? The breakeven of a covered call strategy is largely dependent on the respective investors individual purchase price of the long underlying security. If the security was purchased at the same time the call was sold, the breakeven would be the starting security price minus the premium received for the call sale.
How does volatility impact a covered call strategy? An increased implied volatility would have a negative impact to a covered call strategy. Increased levels of implied volatility would make it more expensive for the investor to close out the short call position.
How does time decay impact a covered call strategy? Time decay is a positive factor for a covered call strategy. The short call position benefits from the passage of time.
What is the assignment risk of a covered call strategy? A covered call strategy does have assignment risk. The option buyer can call away the underlying security at any time prior to the options expiration.
What is a covered put strategy? A covered put strategy combines a short underlying security position and short put position. The proceeds of the short put sale can be invested in an interest-bearing investment.
What is a covered put strategy’s maximum loss? The strategy’s maximum loss is theoretically unlimited. The worst-case scenario is that the security price rises above the initial underlying short position price plus the premium received from the short put position.
What is the investors outlook of a covered put strategy? A covered put writer is typically bearish the underlying security.
What is the maximum gain of a covered put strategy? The maximum gain on a covered put strategy is capped by the strike of the short put. The best-case scenario is that the underlying security price declines to the short put strike.
What is the profit, loss of a covered put strategy? The profit of this strategy is limited by the short put strike. The loss of a covered put strategy is unlimited.
What is the breakeven of a covered put strategy? The covered put strategy breakeven is when the underlying security price is equal to the initial short sale price plus the premium received for the put sale.
How does volatility impact a covered put strategy? An increased implied volatility would have a negative impact to a covered put strategy. Increased levels of implied volatility would make it more expensive for the investor to close out the short put position.
How does time decay impact a covered put strategy? Time decay is a positive factor for a covered put strategy. The short put position benefits from the passage of time.
What is the risk of assignment for a covered put strategy? A covered put strategy does have assignment risk. The option buyer can put the option seller the underlying security at any time prior to the options expiration.
What is a covered combination strategy? A covered combination combines several positions; a long security position, a short call position, a short put position, and finally enough cash to cover the short put position. Essentially, this strategy is a combination of two strategies; covered call and a type of covered put.
What is an investor outlook who is utilizing a covered combination strategy? The investor in a covered combination is looking for a flat security price or for it to trade in a narrow range during the life of the options.
What is the maximum loss of a covered combination? The maximum loss of a covered combination is limited to downside risk. The investor of a covered combination has significant downside risk.
What is the profit, loss of a covered combination? The profit potential of a covered combination is limited while the loss potential is significant. The potential profit is limited by the call strike and the premium received from the two option sales.
What is the breakeven of a covered combination? The investors breakeven price of a covered combination is dependent on their respective purchase price of the underlying security. However, if the investor purchases the security at the same time, they sell short the two options their breakeven price would be the long security price minus the premium received from the option sales.
How does volatility impact a covered combination? An increased implied volatility would have a negative impact to a covered combination strategy. Increased levels of implied volatility would make it more expensive for the investor to close out the short put and call positions.
How does time decay impact a covered combination? Time decay is a positive factor for a covered combination strategy. The short put and call positions benefits from the passage of time.
What is the assignment risk of a covered combination? A covered combination strategy does have assignment risk. The option buyer can put or call away the option sellers underlying security at any time prior to the options expiration.
What is a collar strategy? A collar strategy combines a covered call and protective put strategy. The investor holds long the underlying security and writes a covered call then buys a protective put on the underlying security.
What is the investor outlook of a collar strategy? The investor of a collar strategy is looking for a slight rise in the underlying security price but wants to protect their long position against a substantial decline in the price.
What is the maximum loss of a collar strategy? The collar strategy’s maximum loss is substantially limited by the hedge in place. The worst scenario is that the underlying security price falls below the strike of the protective put.
What is the maximum gain of a collar strategy? A collar strategy’s maximum gain is capped. The short call strike in this strategy limits its maximum gain.
What is the profit, loss of a collar strategy? The profit potential of a collar strategy is limited by the short call strike. The loss is substantially reduced by the protective put and short call positions.
What is the breakeven of a collar strategy? Investors breakeven of a collar strategy will be dependent on what price they purchase the underlying security. However, if the investor purchases the underlying security at the same time, they purchase the protective put and institute the short the covered call position the breakeven would be the following; The underlying security price that sets the following equation to zero, security price minus purchase price of security plus call premium received minus put premium spent.
How does volatility impact a collar strategy? Volatility does not have a large impact on a collar strategy. The short position and long position largely offset the volatility movements.
How does time decay impact a collar strategy? Time decay does not impact a traditional collar strategy significantly. The decay is a positive attribute for the short call position and a negative for the protective put position.
What is a long iron butterfly strategy? A long iron butterfly strategy combines four option legs; a short call, long call, short put, and long put. This strategy consists of bear put spread and a bull call spread. [Read More]
What is a bull call spread strategy? A bull call spread consists of buying a long call and selling a short call at a higher strike. The strategy typically is an initial capital outlay for the investor.
What is the investor outlook of a bull call spread strategy? An investor in a bull call spread is looking for the underlying security price to increase over the life of the options.
What is the maximum loss of a bull call spread strategy? The maximum loss of a bull call spread is limited. The maximum loss is limited to the premium outlay of the strategy.
What is the maximum gain of a bull call spread strategy? The maximum gain of a bull call spread is capped by the strike of the short call. The maximum gain an investor in a bull call spread can receive is the short call strike minus the long call strike minus the net premium cost of the strategy.
What is the profit, loss of a bull call spread strategy? The profit of a bull call spread is limited by the short call strike, but the loss is also limited to only the net premium invested in the strategy. The short call helps offset the long call premium cost.
What is the breakeven of a bull call spread strategy? The breakeven of a bull call spread is an easy calculation. The strategy’s breakeven underlying security price is equal to long call strike plus the net premium cost.
How does volatility impact a bull call spread strategy? Volatility only slightly impacts a bull call spread because the strategy has both a short and long option position.
How does time decay impact a bull call spread strategy? Time decay is a detracting attribute to a bull call spread. Time decay can hurt the profitability of the long call position.
How does assignment risk impact a bull call spread strategy? A bull call spread does have assignment risk. If the underlying security price goes above the short call strike the opposing long call holder can exercise the call at any time and call away the underlying security.
What is a bear call spread strategy? A bear call spread option strategy combines one short call option and one long call option. The investor believes that the underlying security will hold steady or decrease in value over the life of the option.
What is the investor outlook of a bear call spread strategy? The investor in a bear call spread option strategy is looking for a steady to decreasing underlying security price during the life of the option.
What is the maximum loss of a bear call spread strategy? The maximum loss of a bear call spread is capped. The worst-case scenario is the underlying security moves upward and surpasses the short call strike and hits the long call strike.
What is the profit, loss of a bear call spread strategy? The profit of a bear call spread is capped to only the net premium received for implementing the trade. The loss is also capped by the long call strike price.
What is the breakeven of a bear call spread strategy? A bear call spread option strategy’s breakeven price is calculated by taking the short call strike and adding the net premium received from implementing the trade.
How does volatility impact a bear call spread? Volatility changes minimally impact a bear call spread because of the opposing short and long option positions. The changes in volatility are largely offset because of having one short and one long contract.
How does time decay impact a bear call spread? Time decay is a positive attribute to a bear call spread. The benefits of time decay are largely seen on the short call contract and are somewhat offset by the long call contract.
What is the assignment risk of a bear call spread? A bear call spread does face assignment risk. The short call position can be exercised at any time by the call purchaser.
What is a bull put spread? A bull put spread is an option strategy that combines a short put and a long put. The short put is at a higher strike than the long put.
What is the investor outlook of a bull put spread? An investor in a bull put spread believes the underlying security price will be flat or rising.
What is the maximum loss of a bull put spread? The maximum loss of a bull put spread is capped. The long-put strike limits the strategy’s downside risk.
What is the maximum gain of a bull put spread? The maximum gain of a bull put spread is limited to the net premium received for instituting the strategy. The best-case scenario would be the underlying security price staying flat or rising.
What is the profit, loss of a bull put spread? The profit potential of a bull put spread is limited to the net premium received. The loss potential of a bull put spread is limited by the long-put strike.
What is the breakeven of a bull put spread? The breakeven underling security price of a bull put spread is the short put strike minus the net premium received for instituting the strategy.
How does volatility impact a bull put spread? Volatility changes minimally impact a bull put spread because of the opposing short and long option positions. The changes in volatility are largely offset because of having one short and one long contract.
How does time decay impact a bull put spread? Time decay is a positive attribute to a bull put spread. The benefits of time decay are largely seen on the short put contract and are somewhat offset by the long put contract.
What is the assignment risk to an investor of a bull put spread strategy? A bull put spread does face assignment risk. The short put position can be exercised at any time by the put purchaser.
What is a bear put spread? A bear put spread is comprised of a long put and short put option. The long-put strike is higher than the short put strike.
What is the outlook of a bear put spread? An investor of a bear put spread is anticipating the underlying security to fall in price during the term of the option contracts.
What is the maximum loss of a bear put spread? The maximum loss of a bear put spread is capped to the premium spent on the strategy. The worst-case scenario is that the underlying security price increases above the long-put strike during the life of the option contract.
What is the maximum gain of a bear put spread? The maximum gain of a bear put spread is limited by the short put strike. The best-case scenario would be the underlying security price being below the short put strike at expiration.
What is a long straddle? A long straddle is an option strategy that combines a long call and a long put. Typically, the long call and long put are at the same expiration and strike.
What is a short straddle? A short straddle is an option strategy that combines a short call and a short put. Typically, the short call and short put are at the same expiration and strike.
What is a long strangle? A long strangle option strategy is comprised of a long call and a long put. Typically, both options are out-of-the-money and often have the same expiration.
What is a short strangle? A short strangle is an option strategy that combines a short call and a short put. Typically, the short call and short put are at the same expiration and often both strikes are out of the money.
What is a cash-backed call? A cash-backed call is a combination of going long a call and holding the cash to exercise that call. The cash is typically invested in an interest-bearing investment.
What is a covered ratio spread? A covered ratio spread option strategy is comprised of being long the underlying security, short 2 calls, and long a call. The two short calls are typically out-of-the money.
What is a long call butterfly? A long call butterfly option strategy combines 2 long calls and 2 short calls. One long call is the lowest strike, two short calls are at a middle strike, and one long call is at the highest strike. Typically, the strikes are equal distance apart from the middle strike and often all options have the same expiration.
What is a long call condor? A long call condor is the combination of several options. The strategy holds two long call contracts and two short call contracts.
What is a long condor? A long condor option strategy consists of four options. The strategy holds one long call, one short call, one long put, and one short put.
What is a long put butterfly? A long put butterfly option strategy combines 2 long puts and 2 short puts. One long put is the lowest strike, two short puts are at a middle strike, and one long put is at the highest strike.
What is a long put condor? A long put condor is the combination of several options. The strategy holds two put call contracts and two short put contracts.
What is a long ratio call spread? A long ratio call spread combines a short call and two long call options. The short call strike is less than the two long call strikes.
What is a long ratio put spread? A long ratio put spread combines a short put and two long put options. The short put strike is higher than the two long put strikes.
What is a short call butterfly? A short call butterfly option strategy consists of 4 options; 2 short calls and 2 long calls. The first leg in the strategy is a short call with the lowest strike, the second is 2 long calls at a middle strike, and the third is a short call with the highest strike.
What is a short iron butterfly? A short iron butterfly strategy combines four option legs; a short call, long call, short put, and long put. This strategy consists of bear call spread and a bull put spread. Its objective is to have the underlying security trade in a narrow range. [Read More]
What is a short put butterfly? A short put butterfly option strategy combines 2 long puts and 2 short puts. One short put is the lowest strike, two long puts are at a middle strike, and one short put is at the highest strike.
What is a short ratio call spread? A short ratio call spread is a combination of a bull call spread and a naked call. The strategy combines 2 short calls and 1 long call.
What is a short ratio put spread? A short ratio put spread is a combination of a bear put spread and a naked put. The strategy combines 2 short puts and 1 long put.
What is a synthetic long put? A synthetic long put option strategy combines a long call and a short security position. The strategy is looking for the underlying security price to decrease to be profitable.
What is a synthetic long stock? A synthetic long security option strategy mimics the risk and return characteristics of a long security position. The advantage of this strategy is that you can have similar return and risk characteristics to a long security position with the large capital requirement.
What is a synthetic short stock? A synthetic short security option strategy mimics the risk and return characteristics of a short position on the underlying security. The advantage of this strategy is that you can have similar return and risk characteristics to a short security without the large capital inflow from going short the shares.
What is the maximum gain of a covered combination? A covered combinations maximum gain would occur if the underlying security price was above the short call strike at expiration. In this scenario the investor would pocket both the short put and call premiums in addition to receiving some appreciation on the underlying long equity position.
What is the investor outlook of a covered call strategy? The investor in a covered call strategy is looking for a steady to slightly increasing security price during the term of the option.
What assignment risk does an investor face with a collar strategy? A collar strategy does have assignment risk. The short call position can be exercised by the long call holder at any time prior to the options expiration.
What is a stock repair option strategy? A stock repair is an option strategy typically utilized by investors who hold a long underlying security position that has experienced a negative return. The investor hopes this strategy will assist them in getting to breakeven and liquidation of the security quicker.
What is the investor outlook of a stock repair option strategy? An investor in a stock repair is bullish on the underlying security for the life of the option contracts.
What is the maximum loss of a stock repair option strategy? The maximum loss of a stock repair is substantial. Theoretically, the underlying security could go to zero, this would be the worst-case scenario.
What is the maximum gain of a stock repair option strategy? The maximum gain is capped by the two short call position strikes. The best-case scenario is the underlying security price goes above the short call strike.
What is the profit and loss relationship of a stock repair option strategy? The profit is capped to the short call strikes, this strategy is typically just trying to get to breakeven for the investor. The loss potential of this strategy is substantial and is only limited by the fact the security cannot go below a zero price.
What is the breakeven of a stock repair option strategy? The breakeven of a stock repair is dependent on the investors initial purchase price of the underlying security. Typically, this strategy is utilized to get to breakeven quicker for the investor.
What is the impact of volatility on a stock repair option strategy? Volatility is a positive contributor for the long call position and a negative for the two short call positions of a stock repair. If the investor wanted to close out the position, volatility would make the two-short call positions more costly to close out.
What is the impact of time decay (theta) on a stock repair option strategy? Time decay is beneficial for the two short call positions and a detractor for the long call position of this strategy.
What is the assignment risk of a stock repair option strategy? The stock repair strategy does face assignment risk from the two short call positions. The long call buyer can exercise the call options at any time.
What is an Iron Condor (Short Condor) option strategy? An Iron Condor is an option strategy comprised of bear call spread and a bull put spread. This entails the investor having a short call and put position and a long call and put position. [Read More]
What is the investor outlook of an Iron Condor (Short Condor) option strategy? The investor of an Iron Condor is looking for the security to stay relatively flat and trade in a specific range during the life of the options.
What is the maximum loss of an Iron Condor (Short Condor) option strategy? The maximum loss of an Iron Condor is limited. The worst-case scenario is the underlying security price goes above either of the long option strikes.
What is the maximum gain of an Iron Condor (Short Condor) option strategy? The maximum gain of an Iron Condor strategy is if the underlying security price is within the short call and put strikes at expiration. This is the best-case scenario.
What is the profit and loss relationship of an Iron Condor (Short Condor) option strategy? The Iron Condor’s profit and loss potential are both limited. The profit is limited to a maximum of the net premium received from the strategy.
What is the breakeven of an Iron Condor (Short Condor) option strategy? The breakeven of an Iron Condor is when the underlying security is above the short call or below the short put by the amount of the net premium received.
What is the impact of volatility on an Iron Condor (Short Condor) option strategy? An increase in implied volatility would have a negative impact on an Iron Condor. The strategy benefits if the security trades in a tight band with limited volatility.
What is the impact of time decay (theta) on an Iron Condor (Short Condor) option strategy? Time decay is a positive factor to Iron Condor option strategy’s. Each day that passes erodes the short call and short put time value until they are left with only intrinsic value at expiration.
What is the assignment risk of an Iron Condor (Short Condor) option strategy? Iron Condors are susceptible to assignment risk. If the underlying price goes above the short call or below the short put strike the underlying security could be called away or put to the investor.
What is the profit and loss relationship of a bear put spread? The profit and loss potential of a bear put spread are both limited. The short put limits the profit potential.
What is the breakeven of a bear put spread option strategy? A bear put spread breakeven price is easily calculated. The breakeven underlying security price is calculated by subtracting the net premium received from the long-put strike.
What is the impact of volatility on a bear put spread? Volatility only slightly impacts a bear put spread because the strategy has both a short and long option position.
What is the impact of time decay (theta) on a bear put spread? Time decay is a detracting attribute to a bear put spread. Time decay can hurt the profitability of the long-put position.
What is the assignment risk of a bear put spread? A bear put spread does have assignment risk. If the underlying security price goes below the short put strike the opposing long put holder can exercise the put at any time and put the underlying security to the investor.
What is the investor outlook of a long straddle? The investor in a long straddle is looking for a sharp directional move either down or up in the underlying security during the life of the option.
What is the maximum loss of a long straddle? The maximum loss of a long straddle is capped to the premium spent on initiating the strategy. The worst-case scenario is that the underlying security price holds steady.
What is the maximum gain of a long straddle? The maximum gain on a long straddle is theoretically unlimited. The best-case scenario is the underlying security makes a large move either down or up.
What is the profit and loss relationship of a long straddle? The profit potential of a long straddle is theoretically unlimited. The loss risk is capped to the premium spent instituting the strategy.
What is the breakeven of a long straddle? The breakeven calculation for a long straddle is fairly simple. The underlying security price that results in the strategy breaking even is calculated by subtracting the premium from the put strike for a downward move and adding the premium to the call strike for an upward move.
What is the impact of volatility on a long straddle? The change of volatility is very important to a long straddle option strategy. Because the investor is long two option contracts an increase in implied volatility should raise the price of both contracts.
What is the impact of time decay (theta) on a long straddle? Time decay is an extremely negative factor to a long straddle option strategy. The long put and call both suffer from time decay.
What is the assignment risk of a long straddle? There is no assignment risk for a long straddle option strategy.
What is the investor outlook of a short straddle option strategy? The investor of a short straddle is looking for the underlying security to remain steady in price during the life of the option.
What is the maximum loss of a short straddle option strategy? The maximum loss of a short straddle is theoretically unlimited. The worst-case scenario is the price of the underlying security rises to infinity or falls to zero.
What is the maximum gain of a short straddle option strategy? The maximum gain of a short straddle is limited to the premium received for implementing the strategy. The best-case scenario is the underlying security stays constant.
What is the profit and loss relationship of a short straddle option strategy? The profit of a short straddle is limited while the risk of loss is unlimited. The investor should be confident in their forecast prior to implementing a strategy with so much loss potential.
What is the breakeven of a short straddle option strategy? There are two underlying security prices that result in breakeven for a short straddle. One breakeven price is calculated assuming the security moves upward, this calculation is the call strike plus the premium received.
What is the impact of volatility on a short straddle option strategy? Increasing volatility is a negative factor to a short straddle option strategy. The investor holds two short option contracts.
What is the impact of time decay (theta) on short straddle option strategy? Time decay is an extremely important factor for a short straddle option strategy. As time passes it erodes the time premium of the two short contracts driving them towards their intrinsic value.
What is the assignment risk of a short straddle option strategy? A short straddle option strategy does have assignment risk. The investor holds two short contracts.
What is the investor outlook of a short strangle option strategy? The investor of a short strangle is looking for the underlying security to remain steady in price during the life of the option.
What is the maximum loss of a short strangle option strategy? The maximum loss of a short strangle is theoretically unlimited. The worst-case scenario is the price of the underlying security rises to infinity or falls to zero.
What is the maximum gain of a short strangle option strategy? The maximum gain of a short strangle is limited to the premium received for implementing the strategy. The best-case scenario is the underlying security stays constant.
What is the profit and loss relationship of a short strangle option strategy? The profit of a short strangle is limited while the risk of loss is unlimited. The investor should be confident in their forecast prior to implementing a strategy with so much loss potential.
What is the breakeven of a short strangle option strategy? There are two underlying security prices that result in breakeven for a short strangle. One breakeven price is calculated assuming the security moves upward, this calculation is the call strike plus the premium received.
What is the impact of volatility on a short strangle option strategy? Increasing volatility is a negative factor to a short strangle option strategy. The investor holds two short option contracts.
What is the impact of time decay (theta) on a short strangle option strategy? Time decay is an extremely important factor for a short strangle option strategy. As time passes it erodes the time premium of the two short contracts driving them towards their intrinsic value.
What is the assignment risk of a short strangle option strategy? A short strangle option strategy does have assignment risk. The investor holds two short contracts.
What is the investor outlook of a cash-backed call option strategy? The investor of cash-backed call option is bullish on the security. However, they may be anticipating some short-term volatility that could create a better entry price.
What is the maximum loss of a cash-backed call option strategy? The maximum loss of a cash-backed call is limited. The worst-case scenario would be that the security falls in price below the call option strike.
What is the maximum gain of a cash-backed call option strategy? The maximum gain of a cash-backed call is theoretically unlimited. The security price can rise into infinity and the investor can capitalize on that gain.
What is the profit and loss relationship of a cash-backed call option strategy? A cash-backed call option strategy’s loss is limited to the premium spent. The profit potential of the strategy is theoretically unlimited.
What is the breakeven of a cash-backed call option strategy? The breakeven of cash-backed call is when the underlying security price goes above the strike of the call in the amount of the premium spent. Therefore, the breakeven price is the call strike plus the premium spent. [Read More]
What is the impact of volatility on a cash-backed call option strategy? An increase in implied volatility is a positive attribute to a cash-backed call option strategy. The increase in volatility should increase the investors call option price.
What is the impact of time decay (theta) on a cash-backed call option strategy? Time decay is a negative factor to a cash-backed call option strategy. Every day that passes erodes the time premium from the call option and drives it to intrinsic value.
What is the assignment risk of a cash-backed call option strategy? A cash-backed call option strategy does not have assignment risk.
What is the investor outlook of a covered ratio spread option strategy? The investor in a covered ratio spread option strategy is looking for a slight rise in the security price.
What is the maximum loss of a covered ratio spread option strategy? The maximum loss of a covered ratio spread could be substantial. The worst-case scenario is that the underlying security goes to zero.
What is the maximum gain of a covered ratio spread option strategy? The maximum gain of a covered ratio spread option strategy is limited by the short call options. The best-case scenario is underlying security rises in price until the short call strike and then stops.
What is the profit and loss relationship of a covered ratio spread option strategy? A covered ratio spread has limited profit potential. The strategy’s potential loss could be substantial.
What is the breakeven of a covered ratio spread option strategy? The breakeven price of a covered ratio spread is an easy calculation. The underlying security price that results in the strategy breaking even is the underlying security price at the time the strategy is implemented subtracted by the net premium received.
What is the impact of volatility on a covered ratio spread option strategy? A covered ratio spread reacts negatively to an increase in volatility. This negative reaction is due to the short call options in the strategy. [Read More]
What is the impact of time decay (theta) on a covered ratio spread option strategy? Time decay is a positive attribute to a covered ratio spread option strategy. Every day that passes the short calls time premium decays and approaches their intrinsic value.
What is the assignment risk of a covered ratio spread option strategy? A covered ratio spread does face assignment risk. If the underlying security price goes above the short call strikes the holder of the call contracts can exercise them at any time.
What is the assignment risk of a covered ratio spread option strategy? A covered ratio spread does face assignment risk. If the underlying security price goes above the short call strikes the holder of the call contracts can exercise them at any time.
What is the investor outlook of a long call butterfly option strategy? The investor of a long call butterfly option strategy is anticipating the underlying security to be at a specific price target at expiration.
What is the maximum loss of a long call butterfly option strategy? The maximum loss of a long call butterfly is limited. The worst-case scenario for this strategy is that the underlying security is outside the wings.
What is the maximum gain of a long call butterfly option strategy? The maximum profit of a long call butterfly is capped. The best-case scenario is that the underlying security ends up at the short calls strike at expiration.
What is the profit and loss relationship of a long call butterfly option strategy? The profit and loss of a long call butterfly is capped. The loss is capped to the net premium spent on the strategy.
What is the breakeven of a long call butterfly option strategy? A long call butterfly strategy breakeven is if the underlying security price is above the lower long call strike or below the higher long call strike by the amount of net premium paid.
What is the impact of volatility on a long call butterfly option strategy? Volatility increases typically impacts a long call butterfly strategy negatively.
What is the impact of time decay (theta) on a long call butterfly option strategy? Time decay is typically a positive attribute for a long call butterfly. Each day that passes erodes the short call positions to their intrinsic value.
What is the assignment risk of a long call butterfly option strategy? There is assignment risk for a long call butterfly option strategy. If the underlying security goes above the two short calls, they can be exercised by the call holder at any time.
What is the investor outlook of a long call condor option strategy? The investor of a long call condor is typically looking for little to no movement in the underlying price.
What is the maximum loss of a long call condor option strategy? The maximum loss of a long call condor is capped. The worst-case scenario is that the underlying security price is either below the lowest strike call or above the highest strike call at expiration.
What is the maximum gain of a long call condor option strategy? The maximum gain of a long call condor is capped. The best-case scenario is that the underlying security is between the two short call strikes at expiration.
What is the profit and loss relationship of a long call condor option strategy? A long call condor’s profit is capped, and its loss potential is also limited.
What is the breakeven of a long call condor option strategy? A long call condor has two breakeven points. The first breakeven point would result in an underlying security price that is calculated by taking the lower long call strike plus the premium paid to initiate the strategy.
What is the impact of volatility on a long call condor option strategy? Typically, an increase in implied volatility will have a negative impact on a long call condor. This strategy intends to have the underlying security price to remain relatively flat.
What is the impact of time decay (theta) on a long call condor option strategy? Time decay is a positive attribute to a long call condor. The short call positions erode their time premium as they approach expiration until they are only left with intrinsic value.
What is the assignment risk of a long call condor option strategy? A long call condor does face assignment risk. If the underlying security is above one or both of the short call strikes the opposing option holder can exercise the calls and call away the stock from the strategy holder.
What is the investor outlook of a long condor option strategy? The investor of a long condor option strategy is looking for a sharp move in the underlying security price in either direction.
What is the maximum loss of a long condor option strategy? The maximum loss of a long condor option strategy is limited. The worst-case scenario is that the underlying security price is between the two long option contracts.
What is the maximum gain of a long condor option strategy? The maximum gain of a long condor option strategy is capped. The best-case scenario would be for the underlying security to be outside either side of the option wings.
What is the profit and loss relationship of a long condor option strategy? The long condor option strategy has a capped loss potential as well as a limited gain opportunity.
What is the breakeven of a long condor option strategy? There are two breakeven underlying security prices for a long condor option strategy. One breakeven price is calculated by subtracting the premium to institute the strategy from the long-put strike.
What is the impact of volatility on a long condor option strategy? A long condor strategy benefits from increases in implied volatility.
What is the impact of time decay (theta) on a long condor option strategy? Time decay is a negative attribute to a long condor option strategy. The long option positions erode time premium each day that passes.
What is the assignment risk of a long condor option strategy? The long condor option strategy does have assignment risk. If the underlying security gets outside either the low or the high side wings the opposing option holder can exercise the option.
What is the investor outlook of a long iron butterfly option strategy? The investor in a long iron butterfly is looking for a sharp move up or down in the underlying security price.
What is the maximum loss of a long iron butterfly option strategy? The maximum loss of a long iron butterfly strategy is limited. The worst-case scenario would be that the underlying security price is at the long option strikes at expiration.
What is the maximum gain of a long iron butterfly option strategy? The maximum gain of a long iron butterfly option strategy is capped. The best-case scenario is that the underlying security price is outside one of the strategy’s wings (short positions).
What is the profit and loss relationship of a long iron butterfly option strategy? The profit potential of a long iron butterfly option strategy is capped. The loss potential of the strategy is limited to the net premium spent on the strategy.
What is the breakeven of a long iron butterfly option strategy? A long iron butterfly option strategy has two breakeven underlying security prices. The first breakeven price is calculated if the market goes down, it would be the long-put strike minus the net premium paid to initiate the strategy.
What is the impact of volatility on a long iron butterfly option strategy? Volatility increases impact a long iron butterfly option strategy positively.
What is the impact of time decay (theta) on a long iron butterfly option strategy? Time decay has a negative impact on a long iron butterfly option strategy. Every day that passes erodes the long options time premium, this is somewhat offset by the short options.
What is the assignment risk of a long iron butterfly option strategy? - Done A long iron butterfly does have assignment risk. If the underlying security price goes outside either of the short put or short call strikes the options could be exercised by the opposing option holder.
What is the investor outlook of a long put butterfly option strategy? The investor of a long put butterfly option strategy is anticipating the underlying security to be at a specific price target at expiration.
What is the maximum loss of a long put butterfly option strategy? The maximum loss of a long put butterfly is limited. The worst-case scenario for this strategy is that the underlying security is outside the wings.
What is the maximum gain of a long put butterfly option strategy? The maximum profit of a long put butterfly is capped. The best-case scenario is that the underlying security ends up at the short puts strike at expiration.
What is the profit and loss relationship of a long put butterfly option strategy? The profit and loss of a long put butterfly is capped. The loss is capped to the net premium spent on the strategy.
What is the breakeven of a long put butterfly option strategy? A long put butterfly strategy breakeven is if the underlying security price is below the higher long put strike or above the lower long put strike by the amount of net premium paid.
What is the impact of volatility on a long put butterfly option strategy? Volatility increases typically impacts a long put butterfly strategy negatively.
What is the impact of time decay (theta) on a long put butterfly option strategy? Time decay is typically a positive attribute for a long put butterfly. Each day that passes erodes the short call positions to their intrinsic value.
What is the assignment risk of a long put butterfly option strategy? There is assignment risk for a long put butterfly option strategy. If the underlying security goes below the two short puts strikes, they can be exercised by the put holder at any time.
What is the investor outlook of a long put condor option strategy? The investor of a long put condor is typically looking for little to no movement in the underlying price.
What is the maximum loss of a long put condor option strategy? The maximum loss of a long put condor is capped. The worst-case scenario is that the underlying security price is either below the lowest strike put or above the highest strike put at expiration.
What is the maximum gain of a long put condor option strategy? The maximum gain of a long put condor is capped. The best-case scenario is that the underlying security is between the two short put strikes at expiration.
What is the profit and loss relationship of a long put condor option strategy? A long put condor’s profit is capped, and its loss potential is also limited.
What is the breakeven of a long put condor option strategy? A long put condor has two breakeven points. The first breakeven point would result in an underlying security price that is calculated by taking the higher long put strike minus the premium paid to initiate the strategy.
What is the impact of volatility on a long put condor option strategy? Typically, an increase in implied volatility will have a negative impact on a long put condor. This strategy intends to have the underlying security price to remain relatively flat.
What is the impact of time decay (theta) on a long put condor option strategy? Time decay is a positive attribute to a long put condor. The short put positions erode their time premium as they approach expiration until they are only left with intrinsic value.
What is the assignment risk of a long put condor option strategy? A long put condor does face assignment risk. If the underlying security is below one or both of the short put strikes the opposing option holder can exercise the puts and put the shares to the strategy holder.
What is the investor outlook of a long ratio call spread option strategy? An investor in a long ratio call spread is looking for a sharp fast move upward in the underlying security or a large increase in implied volatility.
What is the maximum loss of a long ratio call spread option strategy? The maximum loss of a long ratio call spread option strategy is limited. The worst-case scenario is the underlying security being at the long call strike at expiration.
What is the maximum gain of a long ratio call spread option strategy? Theoretically the maximum gain of a long ratio call spread is unlimited. The gain is not capped and can increase parallel to the underlying security.
What is the profit and loss relationship of a long ratio call spread option strategy? A long ratio call spread has and unlimited return potential and limited loss.
What is the breakeven of a long ratio call spread option strategy? A long ratio call spread has two breakeven calculations depending on if the investor earns net premium or spends net premium when implementing the strategy. If the investor spends net premium to implement the strategy the breakeven is when the underlying price is at price of the long call strike plus the net premium spent.
What is the impact of volatility on a long ratio call spread option strategy? Implied volatility increases are a positive attribute to a long ratio call spread.
What is the impact of time decay (theta) on a long ratio call spread option strategy? Time decay is a negative attribute for a long ratio call spread option strategy. The long calls erode time premium every day, the short call somewhat offsets this drag.
What is the assignment risk of a long ratio call spread option strategy? A long ratio call spread does have assignment risk. If the underlying security price increases above the short call strike the opposing option holder can exercise the option at any time.
What is the investor outlook of a long ratio put spread option strategy? An investor in a long ratio put spread is looking for a sharp fast move downward in the underlying security or a large increase in implied volatility.
What is the maximum loss of a long ratio put spread option strategy? The maximum loss of a long ratio put spread option strategy is limited. The worst-case scenario is the underlying security being at the long put strike at expiration.
What is the maximum gain of a long ratio put spread option strategy? Theoretically the maximum gain of a long ratio put spread is the long put strike minus zero. The gain is only capped to the security going to zero.
What is the profit and loss relationship of a long ratio put spread option strategy? The potential loss of a long ratio put spread is limited while the return potential of the strategy is substantial.
What is the breakeven of a long ratio put spread option strategy? A long ratio put spread has two breakeven calculations depending on if the investor earns net premium or spends net premium when implementing the strategy. If the investor spends net premium to implement the strategy the breakeven is when the underlying price is at price of the long put strike plus the net premium spent.
What is the impact of volatility on a long ratio put spread option strategy? Implied volatility increases are a positive attribute to a long ratio put spread.
What is the impact of time decay (theta) on a long ratio put spread option strategy? Time decay is a negative attribute for a long ratio put spread option strategy. The long puts erode time premium every day, the short put somewhat offsets this drag.
What is the assignment risk of a long ratio put spread option strategy? A long ratio put spread does have assignment risk. If the underlying security price decreases below the short put strike the opposing option holder can exercise the option at any time.
What is a long stock position? A long stock is simply purchasing the shares of a security. The purchase price of the shares sets the cost and the exit price determines if the investor made a profit or a loss.
What is the investor outlook of a long stock position? The investor in a long stock position has a bullish view.
What is the maximum loss of a long stock postion? The maximum loss of a long stock strategy is the entire cost to purchase the security.
What is the maximum gain of a long stock position? The maximum gain of a long stock strategy is theoretically unlimited.
What is the profit and loss relationship of a long stock position? The loss potential is substantial, and the gain potential is significant.
What is the breakeven of a long stock position? A long stock position breakeven price is the price of the underlying at the implementation of the strategy, in other terms the purchase price.
What is the impact of volatility on a long stock position? Implied volatility does not impact a long stock position.
What is the impact of time decay (theta) on a long stock postion? Time decay does not impact a long stock position.
What is the assignment risk of a long stock position? Assignment risk does not impact a long stock position.
What is a short stock postion? A short stock is simply the borrowing and selling of the shares of a security. The sale price of the shares sets the entry price and the purchase price determines if the investor made a profit or a loss.
What is the investor outlook of a short stock position? An inventor that shorts a stock is bearish on the security.
What is the maximum loss of a short stock position? The maximum loss of a short stock strategy is theoretically unlimited
What is the maximum gain of a short stock position? The maximum gain of a short stock strategy is the sale price minus zero.
What is the profit and loss relationship of a short stock position? The loss potential of a short stock strategy is substantial, and the gain potential is significant.
What is the breakeven of a short stock position? A short stock position breakeven price is the price of the underlying at the implementation of the strategy, in other terms the short price.
What is the impact of volatility on a short stock position? Implied volatility does not impact a short stock position.
What is the impact of time decay (theta) on a short stock position? Time decay does not impact a short stock position.
What is the assignment risk of a short stock position? Assignment risk does not impact a short stock position.
What is the investor outlook of a short call butterfly option strategy? An investor in a short call butterfly option strategy is looking to correctly predict an upcoming move in either direction.
What is the maximum loss of a short call butterfly option strategy? The maximum loss of short call butterfly is limited. The worst-case scenario would the underlying security resulting at the long strike price at expiration.
What is the maximum gain of a short call butterfly option strategy? The maximum gain is capped. The best-case scenario would result in the underlying security being outside the short call strategy wings.
What is the profit and loss relationship of a short call butterfly option strategy? The short call butterfly’s profit is capped, and its risk is limited.
What is the breakeven of a short call butterfly option strategy? A short call butterfly option strategy has two breakeven prices. The first breakeven price is above the lower strike short call by the amount of the net premium received.
What is the impact of volatility on a short call butterfly option strategy? An increase in implied volatility will benefit a short call butterfly option strategy.
What is the impact of time decay (theta) on a short call butterfly option strategy? Time decay will usually have a negative impact on a short call butterfly option strategy.
What is the assignment risk of a short call butterfly option strategy? A short call butterfly is exposed to assignment risk. The strategy has 2 short calls that if in the money can be exercised by the opposing option holder.
What is the investor outlook of a short ratio call spread option strategy? The investor of a short ratio call spread is looking for a slightly rising security price or a flat security price.
What is the maximum loss of a short ratio call spread option strategy? The maximum loss of a short ratio call spread is theoretically unlimited. The naked short option call adds significant risk to this strategy.
What is the maximum gain of a short ratio call spread option strategy? The maximum gain of a short ratio call spread is limited. The best-case scenario would be the underlying security price rising to the short call strike and stopping.
What is the profit and loss relationship of a short ratio call spread option strategy? The profit potential of a short ratio call spread is capped. The loss exposure of this strategy is theoretically unlimited.
What is the breakeven of a short ratio call spread option strategy? There are two breakeven calculations for a short ratio call spread option strategy depending on the investor receiving or paying premium to implement the strategy. If the investor receives premium for implementing the strategy the breakeven underlying security price is the short call strike plus the premium received.
What is the impact of volatility on a short ratio call spread option strategy? Because of the 2 short calls a short ratio call spread negatively reacts to an increase in implied volatility.
What is the impact of time decay (theta) on a short ratio call spread option strategy? Time decay is a positive attribute to a short ratio call spread. The 2 short calls benefit from the time decay while the long call option offsets some of the time decay benefit.
What is the assignment risk of a short ratio call spread option strategy? An investor of a short ratio call spread does have assignment risk. If the underlying security’s price goes above the short call strike the opposing option holder can exercise the option.
What is the investor outlook of a short iron butterfly option strategy? The investor of a short iron butterfly option strategy is looking for the underlying security to trade in a narrow range.
What is the maximum loss of a short iron butterfly option strategy? The maximum loss of an short iron butterfly is limited. The worst-case scenario is the underlying security price goes above either of the long option strikes.
What is the maximum gain of a short iron butterfly option strategy? The maximum gain of an iron butterfly strategy is if the underlying security price is at the short call and put strikes at expiration. This is the best-case scenario.
What is the profit and loss relationship of a short iron butterfly option strategy? The short iron butterfly option strategy’s profit and loss potential are both limited. The profit is limited to a maximum of the net premium received from the strategy.
What is the breakeven of a short iron butterfly option strategy? The breakeven of an short iron butterfly is when the underlying security is above the short call or below the short put by the amount of the net premium received.
What is the impact of volatility on a short iron butterfly option strategy? An increase in implied volatility would have a negative impact on a short iron butterfly option strategy. The strategy benefits if the security trades in a tight band with limited volatility.
What is the impact of time decay (theta) on a short iron butterfly option strategy? Time decay is a positive factor to a short iron butterfly option strategy. Each day that passes erodes the short call and short put time value until they are left with only intrinsic value at expiration.
What is the assignment risk of a short iron butterfly option strategy? Short iron butterfly’s are susceptible to assignment risk. If the underlying price goes above the short call or below the short put strike the underlying security could be called away or put to the investor.
What is the investor outlook of a short put butterfly option strategy? The investor of a short put butterfly option strategy is looking for the underlying security price to be outside the short put wings. The investor is satisfied if the security moves upward or downward to get outside the wings.
What is the maximum loss of a short put butterfly option strategy? The maximum loss of a short put butterfly option strategy is capped. The worst-case scenario would be the underlying security expiring at the middle long put strike.
What is the maximum gain of a short put butterfly option strategy? The maximum gain for a short put butterfly would occur if the underlying security price is outside either of the short put wings. If the security price is below the lowest short put all options are in the money and their intrinsic value cancel out.
What is the profit and loss relationship of a short put butterfly option strategy? The profit and loss potential of a put butterfly option strategy are capped significantly.
What is the breakeven of a short put butterfly option strategy? A short put butterfly option strategy has two breakeven prices. The first breakeven price is the highest strike short put minus the premium received.
What is the impact of volatility on a short put butterfly option strategy? A short put butterfly option strategy will benefit from an increase in implied volatility.
What is the impact of time decay (theta) on a short put butterfly option strategy? Time decay is typically a negative factor to a short put butterfly option strategy.
What is the assignment risk of a short put butterfly option strategy? A short put butterfly option strategy does have assignment risk. If the underlying security price is below either short put contract strikes the opposing option holder can exercise the option and put the security to the strategy investor.
What is the investor outlook of a short ratio put spread option strategy? The investor of a short ratio put spread is looking for a slightly falling security price or a flat security price.
What is the maximum loss of a short ratio put spread option strategy? The maximum loss of a short ratio put spread is theoretically the short strike minus zero. The naked short option adds significant risk to this strategy.
What is the maximum gain of a short ratio put spread option strategy? The maximum gain of a short ratio put spread is limited. The best-case scenario would be the underlying security price falling to the short put strike and stopping.
What is the profit and loss relationship of a short ratio put spread option strategy? The loss potential of a short ratio put spread is significant. The gain potential of the strategy is limited.
What is the breakeven of a short ratio put spread option strategy? There are two breakeven calculations for a short ratio put spread option strategy depending on the investor receiving or paying premium to implement the strategy. If the investor pays premium for implementing the strategy the breakeven underlying security price is the long put strike minus the premium received.
What is the impact of volatility on a short ratio put spread option strategy? Because of the 2 short puts a short ratio put spread negatively reacts to an increase in implied volatility.
What is the impact of time decay (theta) on a short ratio put spread option strategy? Time decay is a positive attribute to a short ratio put spread. The 2 short puts benefit from the time decay while the long put option offsets some of the time decay benefit.
What is the assignment risk of a short ratio put spread option strategy? An investor of a short ratio put spread does have assignment risk. If the underlying security’s price goes below the short put strike the opposing option holder can exercise the option.
What is the investor outlook of a synthetic long put option strategy? The investor of a synthetic long put option strategy is bearish on the underlying security.
What is the maximum loss of a synthetic long put option strategy? The maximum loss of a synthetic long put option strategy is limited. The worst case scenario is the underlying security rises above the short call strike.
What is the maximum gain of a synthetic long put option strategy? The maximum gain of a synthetic long put is substantial. The best-case scenario is for the security to become worthless.
What is the profit and loss relationship of a synthetic long put option strategy? The profit opportunity of a synthetic long put is substantial, and the loss potential is limited.
What is the breakeven of a synthetic long put option strategy? A synthetic long put option, underlying security breakeven price, is the short sale security initial price minus the call premium spent.
What is the impact of volatility on a synthetic long put option strategy? Increasing levels of implied volatility is a positive attribute to a synthetic long put option strategy.
What is the impact of time decay (theta) on a synthetic long put option strategy? Time decay is a negative factor to a synthetic long put option. Every day that passes erodes away at the time premium of the long call option.
What is the assignment risk of a synthetic long put option strategy? A synthetic long put option strategy does not have assignment risk.
What is the investor outlook of a synthetic long security option strategy? An investor in a synthetic long security option strategy is looking for the security price to appreciate over the life of the options.
What is the maximum loss of a synthetic long security option strategy? The maximum loss of a synthetic long security option strategy is substantial. The worst case scenario is for the underlying security to go to zero dollars in price.
What is the maximum gain of a synthetic long security option strategy? Theoretically the maximum gain of a synthetic long security option strategy is unlimited. The best scenario would be for the underlying security price to rise significantly above the call strike.
What is the profit and loss relationship of a synthetic long security option strategy? The gain potential of a synthetic long security option strategy is unlimited. However, the loss potential is also substantial.
What is the breakeven of a synthetic long security option strategy? There are two breakeven price calculations for a synthetic long security option strategy depending on if the investor receives or pays premium to implement the strategy. If the investor pays premium to implement the strategy the breakeven price is calculated by adding the premium to the long call strike.
What is the impact of volatility on a synthetic long security option strategy? Volatility increases are not a factor to a synthetic long security option strategy because the long and the short positions offset each other. [Read More]
What is the impact of time decay (theta) on a synthetic long security option strategy? The effects of time decay are offset by the short and long positions of the synthetic long security option strategy.
What is the assignment risk of a synthetic long security option strategy? A synthetic long security option strategy does have assignment risk. If the underlying security falls below the short put strike, the investor could be put the shares at anytime.
What is the investor outlook of a synthetic short security option strategy? An investor in a synthetic short security option strategy is looking for the security price to decline over the life of the options.
What is the maximum loss of a synthetic short security option strategy? The maximum loss of a synthetic short security option strategy is unlimited. The worst case scenario is for the underlying security to increase in price substantially.
What is the maximum gain of a synthetic short security option strategy? Theoretically the maximum gain of a synthetic short security option strategy is the security price going to zero. The best scenario would be for the underlying security price to fall significantly below the long put strike.
What is the profit and loss relationship of a synthetic short security option strategy? The gain potential of a synthetic put security option strategy is substantial. However, the loss potential is unlimited.
What is the breakeven of a synthetic short security option strategy? There are two breakeven price calculations for a synthetic short security option strategy depending on if the investor receives or pays premium to implement the strategy. If the investor pays premium to implement the strategy the breakeven price is calculated by subtracting the premium from the long put strike.
What is the impact of volatility on a synthetic short security option strategy? Volatility increases are not a factor to a synthetic short security option strategy because the long and the short positions offset each other. [Read More]
What is the impact of time decay (theta) on a synthetic short security option strategy? The effects of time decay are offset by the short and long positions of the synthetic put security option strategy.
What is the assignment risk of a synthetic short security option strategy? A synthetic short security option strategy does have assignment risk. If the underlying security goes above the short call strike, the investor could have the underlying shares called away from them at any time.