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What is short selling?

What is short selling?

Short selling is done with the help of a brokerage/custodian, who will lend you the security so that you can sell it
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What are the basics of options?

What are the basics of options?

Options are contracts used by investors to take a speculative position - or hedge - based on expected future price
What is a put option?

What is a put option?

A put option gives the owner of the option/contract the right to sell a stock at the strike price named in the contract
What is a naked put?

What is a naked put?

A naked put is when a put option contract writer or short-seller does not have the resources on hand to cover the position
What is a protective put?

What is a protective put?

A protective put is an option contract that hedges against losses in a long stock positio
What is a call option?

What is a call option?

A call option is a type of contract that allows the contract holder to purchase an underlying stock at a specific price
What is a naked call?

What is a naked call?

A naked call is a type of option contract where the seller of a call does not own the underlying security
What is a covered call?

What is a covered call?

A covered call is when the writer or seller of a call option either owns the underlying security, or has a guarantee
Should I use options in my portfolio?

Should I use options in my portfolio?

Options can be a valuable tool in portfolio management, but investors should be well-versed in how options work
What are option strategies?

What are option strategies?

Option strategies are implemented by investment professionals to profit from the price movement of an underlying strategy
What is a straddle?

What is a straddle?

Straddles are options strategies that use both a call and put on the same underlying asset at the same strike price
What is a covered straddle?

What is a covered straddle?

A covered straddle is a bullish option strategy, where the investors writes the same number of puts and calls with...
What is a time spread?

What is a time spread?

A ‘Time Spread,’ also called a Calendar Spread, involves the use of multiple options of the same type, and strike price
What is a vertical spread?

What is a vertical spread?

A Vertical Spread involves the strategy of buying and selling an equal number of options on the same underlying security
What is a bull call spread?

What is a bull call spread?

A bull call spread is a vertical spread that buys and sells calls in a way that benefits from upward price movement
What is a bull put spread?

What is a bull put spread?

A bull put spread is used when an investor thinks the price of a security is set to rise modestly. The strategy involves
What is a call time spread?

What is a call time spread?

A time spread using call options is a strategy that buys and sells the same number of options with the same strike price
What is a put time spread?

What is a put time spread?

A put time spread is an options strategy that has the investor implementing a short put and a long put at the same price
What is a ratio call spread?

What is a ratio call spread?

Ratio call spreads are options strategies where the investor combines purchased calls and short calls at the same expiration
What is a ratio put spread?

What is a ratio put spread?

A ratio put spread uses multiple put contracts in a certain ratio that makes them start off delta-neutral
What is a bear call spread?

What is a bear call spread?

A bear call spread seeks to make money on the sale of call options but does not believe the underlying security will increase
What is a bear put spread?

What is a bear put spread?

A bear put spread involves the use of two puts, one sold and one bought, at different strike prices
How are option prices computed?

How are option prices computed?

Option prices are decided by the buyers and sellers in the marketplace, but are tied closely to the amount of risk
What is the Black-Scholes formula?

What is the Black-Scholes formula?

The Black-Scholes formula is a formula and market model for explaining or determining the price of European-style options
What is 'buying on margin' and margin trading?

What is 'buying on margin' and margin trading?

A margin trade is one where the trader uses other securities or cash as collateral, for a transaction without purchase
What is buying power?

What is buying power?

‘Buying Power’ is a term used to describe how much additional leverage you have given the excess equity in your account
What is a short position in options trading?

What is a short position in options trading?

Taking a short position is selling a security that you don’t own, because you anticipate that its value is set to fall
What is a long position in options trading?

What is a long position in options trading?

To be “long” means to own a security, and to essentially be bullish on it. When people buy stocks, they are "long"
What does 'short covering' mean?

What does 'short covering' mean?

Covering a short position means to acquiring the securities which were sold short, and returning them to the broker
What does 'call option' mean?

What does 'call option' mean?

If you own a Call Option, you have the right (not the obligation) to purchase a security at an agreed-upon price
What does it mean to 'exercise an option?'

What does it mean to 'exercise an option?'

An options contract starts when the option is exercised, meaning that the option or buy or sell the security is utilized
What is an 'expiration date' in reference to option trading?

What is an 'expiration date' in reference to option trading?

An ‘expiration date’ refers to the time when an option contract must either be acted upon by the owner or left to expire
What does notional value mean?

What does notional value mean?

Notional Value is used in futures and options to describe the total value of the principal of a contract or transaction
What does nominal value mean?

What does nominal value mean?

Nominal value is the original stated value of a security or asset, before it undergoes time value calculations
What does open interest mean?

What does open interest mean?

Open interest is a measurement of the outstanding open positions in a derivative security. Strong open interest means high liquidity
What does out of the money (OTM) mean?

What does out of the money (OTM) mean?

An option is Out Of The Money (OTM) if it isn’t profitable for the option holder to exercise it
What is a strangle?

What is a strangle?

A strangle is an options strategy which is profitable if the price of the underlying security swings either up or down
What is a strike price?

What is a strike price?

A strike price names the price of the underlying security in an options contract at which the underlying security will trade
What is a bear straddle?

What is a bear straddle?

A Bear Straddle is another name for a short straddle, in which the investor writes (goes short) on both a call and a put