Purchasing put options or selling call options to protect oneself? (Part 2)
April 20, 2017
Protection

Purchasing put options or selling call options to protect oneself? (Part 2)

In the last article, we compared purchasing put options with selling call options. We reached the conclusion that, in the absence of a known target price and timeframe, it is better to use strategies that take advantage of the decaying time value of options, such as selling call options, as protection against a decline in the...

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1 week ago
Purchasing put options or selling call options to protect oneself?
April 11, 2017
Bearish Outlook

Purchasing put options or selling call options to protect oneself?

Is it better to purchase put options or to sell call options for protection against loss? Many investors ask this question but, in this as in many areas, there is no single right answer. As we have seen in earlier articles, purchasing options has one major disadvantage: the erosion of the time value that must be counterbalanced...

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2 weeks ago
The Greeks – Vega
April 05, 2017
Concepts

The Greeks – Vega

This week, we will look at another Greek variable, called vega. Vega measures the amount that an option contract’s price changes in response to a change in the volatility of the underlying asset. You will recall that an option’s time value is influenced by the time remaining until expiration and by the implied volatility of...

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3 weeks ago
The Greeks: Theta
March 28, 2017
Concepts

The Greeks: Theta

This week, we will look at another Greek variable: theta. Theta measures the change in the price of an option following a change in the time remaining to its expiration. You will recall that an option’s premium has two components: intrinsic value and time value. But since an option that has reached expiration has run out of...

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1 month ago
The Greeks: Gamma
March 23, 2017
Concepts

The Greeks: Gamma

Our last article showed how delta could help predict the future value of options following a change in the price of the underlying asset. We also learned that delta gives an indication of the equivalent stock position (ESP) on the underlying asset. Gamma Gamma measures the change in the value of delta relative to a change in...

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1 month ago
The Greeks: Delta
March 17, 2017
Concepts

The Greeks: Delta

In the last few articles, we have seen that there are several variables that have an impact on the value of options. This table illustrates how an increase in one of the variables affects the values of call and put options. As you can see, with all other things being equal, when one of the variables moves, we should expect the...

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1 month ago
Term Structure of Implied  Volatility
March 04, 2017
Concepts

Term Structure of Implied Volatility

Changes in implied volatility provide information on options market participants’ expectations regarding future fluctuations in returns on a specific stock. For the purposes of this discussion, we will analyze volatility in the stock price of the Great Canadian Gaming Corporation (GC), which closed at $23.79 on February 24,...

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2 months ago
Dividend Impact on Options’ Intrinsic Value
February 06, 2017
Other

Dividend Impact on Options’ Intrinsic Value

As we mentioned in earlier articles, an option’s intrinsic value is the premium value related to the difference between the stock’s price and the strike on the option. VIoa = max(S – X; 0) VIov = max(X – S; 0) In the previous article, we saw that the evolution of interest rates had an impact on the actual value...

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3 months ago
Impact of interest rates on the intrinsic value of options
January 31, 2017
Concepts

Impact of interest rates on the intrinsic value of options

The intrinsic value of an option is the value of its premium related to changes in the underlying stock’s price compared to the option’s strike price. So the intrinsic value of a call option (IVco) is the difference between the market price of the underlying (U) and the strike (X) of the call option, while the intrinsic...

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3 months ago
Variables with an impact on the value of options
January 24, 2017
Other

Variables with an impact on the value of options

You have done your homework on a stock, analyzing its fundamental and technical data, and you are bullish about its potential over the next few months. You decide to buy call options to make the most of your forecast. Over the next few weeks, the stock climbs slightly, and you see the value of your call options declining...

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3 months ago