SteadyOptions Trading Blog

Options trading has many advantages over stock investment. They are flexible, can be used to manage risk and are capital efficient. But there are also several key disadvantages. Here's our guide to the pros and cons of options trading.

Options are derivatives that allow investors to exchange the right to buy or sell a specific security at a specific price. We've seen before exactly what options are, how they work and their function. Here we go further and explore the two main flavour of options (at those traded on the open market): puts and calls.

Rho is the sensitivity of an options's price to changes in interest rates. It is usually only worth considering for long dated options such as LEAPS. Rho is the least important of the five major Greek metrics. In fact, it is often overlooked entirely when talking about options.

Options theta measures option price sensitivity to time. All things being equal options lose value over time - so called 'time decay' - and theta measures this decay. In other words, an option premium that is not intrinsic value will decline at an increasing rate as expiration nears. 

Options Delta is the measure of an option’s price sensitivity to the underlying stock or security’s market price. It is the expected change in options price with a 1c change in security price (positive if it rises/falls with a rise/fall in market price; negative otherwise).

Gamma is the options greek measuring the sensitivity of delta to changes in stock price. Option traders tend to find it relatively easy to understand how the first-order Greek metrics work. All of these metrics measure how the value of an option moves according to a change in an underlying parameter.

The Options Greeks – Theta, Vega, Delta, Gamma and Rho – measure option price sensitivity to changes in time, volatility, stock price and other parameters. In the world of finance, Greek letters are used to represent how sensitive a financial derivative’s prices are to changes in parameters; the options Greeks are the option version of these.

Strangle Options Definition:

An options strangle strategy is holding both an out of the money put and call option with different strike prices, but the same expiration date and underlying asset. And paying both the put and call premiums.

A costless, or zero cost, collar is an options spread involving the purchase of a protective put on an existing stock position, funded by the sale of an out of the money call. Zero cost collars can be established to fully protect existing long stock positions with little or no cost.

Have you ever wanted to invest a sum of money in something not on the stock market? You’re not alone. There are plenty of people out there who love the idea of investing their cash into something great that will grow over time, but not many people know how to do it in a way that gives them a solid return.

In the money options are those whose strike price is less (for call options) or more (for put options) than the current underlying security price. Options provide the right to buy (call options) or sell (put options) a linked underlying security, such as a stock, at some stage in the future at a preset exercise price.

Out of the money (OTM) options: where the exercise price for a call is more than the current underlying security’s price (or less for a put). This is an example of ‘moneyness’ – a concept which considers the strike price of an option in relation to the current stock price.