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Risk Reversal
In finance, risk reversal (also known as a ''conversion'' when an investment strategy) can refer to a measure of the volatility skew or to a trading strategy. Risk reversal investment strategy A risk-reversal is an option position that consists of selling (that is, being short) an out of the money put and buying (i.e. being long) an out of the money call, both options expiring on the same expiration date. In this strategy, the investor will first form their market view on a stock or an index; if that view is bullish they will want to go long. However, instead of going long on the stock, they will buy an out of the money call option, and simultaneously sell an out of the money put option, using the money from the sale of the put option to purchase the call option. Then as the stock goes up in price, the call option will be worth more, and the put option will be worth less.http://www.quantprinciple.com/invest/index.php/docs/quant_strategies/riskreversal/ Theory of Risk Reversal ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Volatility Skew
Volatility smiles are implied volatility patterns that arise in pricing financial options. It is a parameter (implied volatility) that is needed to be modified for the Black–Scholes formula to fit market prices. In particular for a given expiration, options whose strike price differs substantially from the underlying asset's price command higher prices (and thus implied volatilities) than what is suggested by standard option pricing models. These options are said to be either deep in-the-money or out-of-the-money. Graphing implied volatilities against strike prices for a given expiry produces a skewed "smile" instead of the expected flat surface. The pattern differs across various markets. Equity options traded in American markets did not show a volatility smile before the Crash of 1987 but began showing one afterwards. It is believed that investor reassessments of the probabilities of fat-tail have led to higher prices for out-of-the-money options. This anomaly implies def ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Options Strategy
Option strategies are the simultaneous, and often mixed, buying or selling of one or more options that differ in one or more of the options' variables. Call options, simply known as Calls, give the buyer a right to buy a particular stock at that option's strike price. Opposite to that are Put options, simply known as Puts, which give the buyer the right to sell a particular stock at the option's strike price. This is often done to gain exposure to a specific type of opportunity or risk while eliminating other risks as part of a trading strategy. A very straightforward strategy might simply be the buying or selling of a single option; however, option strategies often refer to a combination of simultaneous buying and or selling of options. Options strategies allow traders to profit from movements in the underlying assets based on market sentiment (i.e., bullish, bearish or neutral). In the case of neutral strategies, they can be further classified into those that are bullish o ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Option (finance)
In finance, an option is a contract which conveys to its owner, the ''holder'', the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or financial instrument, instrument at a specified strike price on or before a specified expiration (options), date, depending on the Option style, style of the option. Options are typically acquired by purchase, as a form of compensation, or as part of a complex financial transaction. Thus, they are also a form of asset and have a Valuation of options, valuation that may depend on a complex relationship between underlying asset price, time until expiration, market volatility, the risk-free rate of interest, and the strike price of the option. Options may be traded between private parties in ''Over-the-counter (finance), over-the-counter'' (OTC) transactions, or they may be exchange-traded in live, public markets in the form of standardized contracts. Definition and application An option is a contract that all ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Moneyness
In finance, moneyness is the relative position of the current price (or future price) of an underlying asset (e.g., a stock) with respect to the strike price of a derivative, most commonly a call option or a put option. Moneyness is firstly a three-fold classification: * If the derivative would have positive intrinsic value if it were to expire today, it is said to be in the money; * If the derivative would be worthless if expiring with the underlying at its current price, it is said to be out of the money; * And if the current underlying price and strike price are equal, the derivative is said to be at the money. There are two slightly different definitions, according to whether one uses the current price (spot) or future price (forward), specified as "at the money spot" or "at the money forward", etc. This rough classification can be quantified by various definitions to express the moneyness as a number, measuring how far the asset is in the money or out of the money with res ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Put Option
In finance, a put or put option is a derivative instrument in financial markets that gives the holder (i.e. the purchaser of the put option) the right to sell an asset (the ''underlying''), at a specified price (the ''strike''), by (or at) a specified date (the '' expiry'' or ''maturity'') to the ''writer'' (i.e. seller) of the put. The purchase of a put option is interpreted as a negative sentiment about the future value of the underlying stock. page 15 , 4.2.3 Positive and negative sentiment The term "put" comes from the fact that the owner has the right to "put up for sale" the stock or index. Puts may also be combined with other derivatives as part of more complex investment strategies, and in particular, may be useful for hedging. Holding a European put option is equivalent to holding the corresponding call option and selling an appropriate forward contract. This equivalence is called " put-call parity". Put options are most commonly used in the stock market to protec ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Call Option
In finance, a call option, often simply labeled a "call", is a contract between the buyer and the seller of the call option to exchange a security at a set price. The buyer of the call option has the right, but not the obligation, to buy an agreed quantity of a particular commodity or financial instrument (the underlying) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price). This effectively gives the owner a ''long'' position in the given asset. The seller (or "writer") is obliged to sell the commodity or financial instrument to the buyer if the buyer so decides. This effectively gives the seller a ''short'' position in the given asset. The buyer pays a fee (called a premium) for this right. The term "call" comes from the fact that the owner has the right to "call the stock away" from the seller. Price of options Option values vary with the value of the underlying instrument over time. The price of the call contract ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Maturity (finance)
In finance, maturity or maturity date is the date on which the final payment is due on a loan or other financial instrument, such as a bond or term deposit, at which point the principal (and all remaining interest) is due to be paid. Most instruments have a ''fixed maturity date'' which is a specific date on which the instrument matures. Such instruments include fixed interest and variable rate loans or debt instruments, however called, and other forms of security such as redeemable preference shares, provided their terms of issue specify a maturity date. It is similar in meaning to "redemption date". Some instruments have ''no fixed maturity date'' which continue indefinitely (unless repayment is agreed between the borrower and the lenders at some point) and may be known as "perpetual stocks". Some instruments have a range of possible maturity dates, and such stocks can usually be repaid at any time within that range, as chosen by the borrower. A ''serial maturity'' is whe ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Long (finance)
In finance, a long position in a financial instrument means the holder of the position owns a positive amount of the instrument. The holder of the position has the expectation that the financial instrument will increase in value. This is known as a bullish position. Security In terms of a security, such as a stock or a bond, or equivalently ''to be long'' in a security, means the holder of the position owns the security, on the expectation that the security will increase in value, and will profit if the price of the security goes up. ''Going long'' a security is the more conventional practice of investing. Future Going long in a future means the holder of the position is obliged to buy the underlying instrument at the contract price at expiry. The holder of the position will profit if the price of the underlying instrument goes up, as the price he will pay will be less than the market price. Option An options Option or Options may refer to: Computing *Option key, a ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Foreign Exchange Option
In finance, a foreign exchange option (commonly shortened to just FX option or currency option) is a derivative financial instrument that gives the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. See Foreign exchange derivative. The foreign exchange options market is the deepest, largest and most liquid market for options of any kind. Most trading is over the counter (OTC) and is lightly regulated, but a fraction is traded on exchanges like the International Securities Exchange, Philadelphia Stock Exchange, or the Chicago Mercantile Exchange for options on futures contracts. The global market for exchange-traded currency options was notionally valued by the Bank for International Settlements at $158.3 trillion in 2005. Example For example, a GBPUSD contract could give the owner the right to sell £1,000,000 and buy $2,000,000 on December 31. In this case the pre-agreed exchang ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Finance
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of financial economics bridges the two). Finance activities take place in financial systems at various scopes, thus the field can be roughly divided into personal, corporate, and public finance. In a financial system, assets are bought, sold, or traded as financial instruments, such as currencies, loans, bonds, shares, stocks, options, futures, etc. Assets can also be banked, invested, and insured to maximize value and minimize loss. In practice, risks are always present in any financial action and entities. A broad range of subfields within finance exist due to its wide scope. Asset, money, risk and investment management aim to maximize value and minimize volatility. Financial analysis is viability, stability, and profitabili ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Volatility (finance)
In finance, volatility (usually denoted by ''σ'') is the degree of variation of a trading price series over time, usually measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices. Implied volatility looks forward in time, being derived from the market price of a market-traded derivative (in particular, an option). Volatility terminology Volatility as described here refers to the actual volatility, more specifically: * actual current volatility of a financial instrument for a specified period (for example 30 days or 90 days), based on historical prices over the specified period with the last observation the most recent price. * actual historical volatility which refers to the volatility of a financial instrument over a specified period but with the last observation on a date in the past **near synonymous is realized volatility, the square root of the realized variance, in turn calculated using the sum of s ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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Investment Strategy
In finance, an investment strategy is a set of rules, behaviors or procedures, designed to guide an investor's selection of an investment portfolio. Individuals have different profit objectives, and their individual skills make different tactics and strategies appropriate. Some choices involve a tradeoff between risk and return. Most investors fall somewhere in between, accepting some risk for the expectation of higher returns. Investors frequently pick investments to hedge themselves against inflation. During periods of high inflation investments such as shares tend to perform less well in real terms. Time horizon of investments. Investments such as shares should be invested into with the time frame of a minimum of 5 years in mind. It is recommended in finance a minimum of 6 months to 12 months expenses in a rainy-day current account, giving instant access before investing in riskier investments than an instant access account. It is also recommended no more than 90% of your mon ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |