Refers to the value of a call or put option. If the difference between the current market price of the underlying security and the strike price is at or very near zero, the option is considered at the money.
The cash-secured put involves selling (“writing”) a put option and simultaneously setting aside enough cash to buy the underlying security if the buyer of the option elects to exercise the option.
A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.
A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.
A type of unsecured, un-subordinated debt security typically issued by a bank. This type of debt security differs from other types of bonds and notes because ETN returns are based upon the performance of a market index minus applicable fees, no period coupon payments are distributed and no principal protections exists.
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Refers to the value of a call or put option. If the difference between the current market price of the underlying security and the strike is above zero, the option is in the money by that amount.
The intrinsic value is the difference between the price of the underlying (for example, the underlying stock or index) and the strike price of the option.
You are “long” a security or option after you purchase it. You are “short” an option if you sold (aka “wrote”) the contract. This will obligate you, the seller, to either buy or sell a security from/to a third party at a predefined price over a specified period of time. You can also be short a security (not an option) that you borrow and then sell in the open market. MRP does not engage in short selling of securities.
A “long VIX” investment is one that is designed to correlate, or move in tandem with the Chicago Board Option Exchange Volatility Index (VIX). These investments may take many forms but are typically Exchange Traded Funds (ETF) or Exchange Trades Notes (ETN). They may also be designed to have various ratios to the daily movement of the VIX (for example 2 times or .5 times) in which case they are also referred to as leveraged or geared ETFs or ETNs.
An option is a contract that gives the buyer the right, but not the obligation, to buy (“call”) or sell (“put”) an underlying security (or index) at a specific price on or before a certain date (“expiration”). An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties including underlying, strike price, expiration date and premium. The seller (or “writer”) of an option receives the premium from the buyer in exchange for the obligation, not the right, to buy or sell the underlying security at a specific price during the contract term.
The current price of any specific option contract that has yet to expire. For most options, the premium is quoted as a dollar amount per share and must be multiplied by 100 to allow for the commitment of 100 shares per contract.
An option spread involves combining two or more different option contracts as part of a defined strategy. The strikes may vary, or the expiration month may vary, or both may vary. These are the most complex form of option trading.
Refers to the value of a call or put option. If the difference between the strike price of a call option and the current market price of the underlying is strike is above zero, the option is out of the money by that amount. For a put contract, if the difference between the current market price of the underlying security is greater than the put strike, the put option is out of the money by the difference.
Also known as the “extrinsic” value, the portion of an option’s premium that is attributable to the amount of time remaining until the expiration of the option contract. An option’s premium is comprised of two components: its intrinsic value and its time value. The intrinsic value is the difference between the price of the underlying (for example, the underlying stock or index) and the strike price of the option. Any premium that is in excess of the option’s intrinsic value is referred to as its time value.