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Introduction to Volatility Skew Volatility skew refers to the difference in implied volatility (IV) between various options on the same underlying asset, based on their strike prices. The term “skew” originates from the shape of the graph when plotting implied volatilities against strike prices for a given option expiration. This
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Introduction to Volatility Arbitrage Volatility arbitrage is a sophisticated trading strategy in finance and investment that targets the disparity between the forecasted future volatility of an asset’s price and the implied volatility reflected in options based on that asset. By identifying discrepancies between forecasted and implied volatilities, a trader can
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Introduction to Option Series An option series represents a collection of identical options on the same underlying security with the same strike price and expiration date. This concept plays a crucial role in the realm of option trading, as it enables traders to capitalize on various opportunities arising from the
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What Is an Option Premium? An option premium refers to the monetary price that traders pay for buying an option contract from writers (sellers). It is the income earned by those selling options, and it reflects both the intrinsic value and extrinsic value of the option. Intrinsic value represents the
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What is Max Pain? Max pain refers to the strike price at which the largest number of option holders are likely to experience losses at expiration. The max pain theory suggests that the underlying stock price tends to gravitate towards this strike price, leading many options to expire worthless. Max
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Introduction to Long Jelly Roll The long jelly roll is an intricate option trading strategy designed to capitalize on the difference in pricing between horizontal call and put spreads. This complex option strategy aims to create a neutral position by buying a long calendar call spread and selling a short
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What is an Option’s Exercise Price? An exercise price, also known as the strike price, is a crucial element in options trading. It represents the predetermined price at which an investor can buy (calls) or sell (puts) the underlying security. The concept of an exercise price is vital because it
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Introduction to the Collar Option Strategy A collar option strategy is a popular investment technique used by institutional investors seeking to protect their portfolio against potential losses, particularly when they hold substantial unrealized gains or have long positions with bullish expectations for the underlying asset over an extended period. By
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