Advanced ConceptsGetting StartedAfter going through the basics module you should now have a solid understanding of what a stock option is, what LEAPS® are and what factors contribute to an options value. You should have knowledge of how to establish an options account and what requirements your broker may impose on you to approve you for options trading. Index OptionsLike equity options, index options offer the investor an opportunity to either capitalize on an expected market move or to protect holdings in the underlying instruments. The difference is that the underlying instruments are indexes. These indexes can reflect the characteristics of either the broad equity market as a whole or specific industry sectors within the marketplace. VolatilityVolatility can be a very important factor in deciding what kind of options to buy or sell. Volatility shows the investor the range that a stocks price has fluctuated in a certain period. Put/Call ParityPut/call parity is a captivating, noticeable reality arising from the options markets. By gaining an understanding of put/call parity, one can begin to better understand some mechanics that professional traders may use to value options, how supply and demand impacts option prices and how all option values (at all the available strikes and expirations) on the same underlying security are related. Prior to learning the relationships between call and put values, we’ll review a couple of items. Black-Scholes FormulaThe Black-Scholes formula was the first widely-used model for option pricing. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option’s strike price, expected interest rates, time to expiration and expected stock volatility. The GreeksThe Greeks are a collection of statistical values (expressed as percentages) that give the investor a better overall view of how a stock has been performing. These statistical values can be helpful in deciding what options strategies are best to use. |
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