Value of an option contract decreases as it nears the expiration date. This decrease in value is described as Time decay, which is technically also called Theta. As an investor or trader you should keep in mind that the expiration date of a contract impacts option prices.Out of the money (OTM) call and put options are more affected by Theta factor than In-the-money (ITM) … [Read more...] about What is time decay in options and how it can impact trading?
Understanding Open Interest (OI) in the Derivatives Market
Open Interest (OI) is a fundamental concept in the derivatives market, reflecting the total number of outstanding contracts that have not yet been settled. By understanding OI, traders can gauge market sentiment and liquidity effectively.What is Open Interest?Open Interest refers to the total number of active contracts (options or futures) that remain unexercised or … [Read more...] about Understanding Open Interest (OI) in the Derivatives Market
European vs. American Options: What is the difference?
Option is a derivative contract that gives its holder the right to buy or sell the underlying asset at an agreed price and agreed time. We have two different styles of exercising options: American style and European style.Both styles specify when the option contract can be exercised by the buyer and have nothing to do with a geographic region.Options are either calls or … [Read more...] about European vs. American Options: What is the difference?
What is Protective Put and how does this strategy work?
In hedging, we have a number of strategies to limit the risk of losing profit and to minimize losses. In this article, we have discussed what is a protective put strategy and how they work in the option market.Protective put is a hedging strategy which uses put option contracts to reduce the potential risk of owning a stock. Protective put is used by those traders and … [Read more...] about What is Protective Put and how does this strategy work?
Call Option vs. Put Option: What is the difference?
Futures and options are two derivatives that traders can buy and sell on a stock exchange. Option is a contract that allows the buyer or holder to have the right, but not the obligation to buy or sell an asset for a predetermined price at a specific date.We have two primary types of options: call options and put options.Both call and put options are traded in stock … [Read more...] about Call Option vs. Put Option: What is the difference?