Concepts
Beginner’s guide to options trading
Montréal Exchange
If you’ve been trading stocks, you should have a pretty good understanding of the mechanics of buying and selling. Getting started with options trading is fairly simple. Here are a few things to know to get started. Step 1: Setting up an options account with your broker The options account can be in a margin or...
The Da Vinci Code: The hidden messages within the option chains
Montréal Exchange
Traders are very opinionated and have their own view on everything. This is why we have a market of buyers and sellers. Otherwise, everyone would be on the same side of the trade. This behaviour is built over time from experience and knowledge. You can do it too. For example, you are able to tell if the stock is trending up or...
Option Myths and Misconceptions
Jason Ayres
For those readers who are just beginning their options education journey, I am sure you have been presented with many opinions from other investors and investment professionals alike, regarding the value and risk that options bring to a portfolio. Unfortunately, many myths and misconceptions have arisen due to a lack of...
A Quick Guide to Volatility and Options Skew
Alan Grigoletto
In my last article, entitled Understanding Vega, we examined how Vega measures the changes in option pricing relative to changes in implied volatility. In today’s article I will delve a little deeper into volatility and its impact across the options chain. There are actually two types of volatility that option traders need to...
Understanding Options Vega
Alan Grigoletto
Prior to understanding Vega, we need to quickly review option-pricing models. The options pricing models are mathematical formulas that help investors and traders remove the guesswork from determining an options price. The models make some assumptions, primarily that stock prices are random and that only one of the option...
Demystifying the Black-Scholes formula
Martin Noël
The Black-Scholes formula is an option valuation model developed by two academics, Fischer Black and Myron Scholes, who first described it in a 1973 article. The article appeared in the same year that the Chicago Board Options Exchange (CBOE) was founded, and the model effectively democratized the use of options. Previously,...
Early Exercise of Options
Martin Noël
Holding shares in a company gives the shareholder the following rights:*The right to transfer ownership, *The right to dividends, *Voting rights, and *The right to residual income and assets. What this means is that shareholders are free to sell their shares, take dividends when they are paid, vote at shareholder meetings and...
Call Put Parity: How to Transform Your Positions
Martin Noël
I have been told frequently – and surely so have you – that selling cash-secured puts is a very risky strategy. Haven’t you? The main reason put forward for not using this strategy is that you could be forced to buy the security, even if the company had just gone bankrupt. In this light, the strategy rightly raises fears....
Delta: Assessing Probabilities Based on the Break-even price
Martin Noël
As we saw in an earlier article, delta measures how much an option’s price moves in relation to a change in the price of the underlying asset. Delta is a variable from the Black-Scholes option pricing model, and it is also used in the industry as an approximation of the probability that the option will be in-the-money at...
Purchasing Put Options or Selling Call Options to Protect Oneself? (Third and Last Part)
Martin Noël
In the two previous articles, we compared purchasing put options as a protective strategy with selling covered call options. The first article used options with monthly expirations, and the second article used options expiring after our period of analysis, from April 17, 2015 to January 22, 2016. In both cases, the analysis led...
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