An option strategy combining a bull and bear spread. It uses three strike prices. The lower two strike prices are used in the bull spread, and the higher strike price in the bear spread. Both puts and calls can be used. This strategy has limited risk and limited profit.
The act of purchasing an "in the money" put option so that the buyer can capitalize on a bear market by effectively shorting a stock without waiting for an uptick. This is a strategy commonly used by investors that wish to capitalize on a falling market. Due to short sale rules by different exchanges, investors may be delayed in shorting a position because of continuously declining markets. An immediate alternative for creating the short strategy is to buy a put option.
A form of option granting in which the award of options is delayed until a piece of bad news becomes known to the public and the stock's price falls. Because an option's strike price is often determined by what the underlying stock's price is on the grant date, waiting for the stock price to drop allows option holders to gain some additional benefit in the form of a lowered strike price. For example, suppose that XYZ Corp. had planned to grant stock options for its CEO on May 7, 2007. However, XYZ Corp. is going to release its earnings a week later, on May 14, and it is believed that the earnings will be under guidance. Because the company didn't meet its earnings projections, the share price will likely drop. Moving the option-granting date to May 15 is likely to cause the option's strike price to be lower compared to if the grant date had been on May 7.This practice is fairly controversial, as some feel that bullet dodging may be a form of insider trading because the option holder, who is usually a member of the company's management, will benefit by using information that is not available to the public.
An option strategy in which maximum profit is attained if the underlying security rises in price. Either calls or puts can be used. The lower strike price is purchased and the higher strike price is sold. The options have the same expiration date. You make a lot of money if the stock rises. You lose it all if it doesn't. It's one of those higher risk maneuvers that can cause a lot of anxiety.
An options strategy that involves purchasing call options at a specific strike price while also selling the same number of calls of the same asset and expiration date but at a higher strike. A bull call spread is used when a moderate rise in the price of the underlying asset is expected. The maximum profit in this strategy is the difference between the strike prices of the long and short options, less the net cost of options. Most often, bull call spreads are vertical spreads. Let's assume that a stock is trading at $18 and an investor has purchased one call option with a strike price of $20 and sold one call option with a strike price of $25. If the price of the stock jumps up to $35, the investor must provide 100 shares to the buyer of the short call at $25. This is where the purchased call option allows the trader to buy the shares at $20 and sell them for $25, rather than buying the shares at the market price of $35 and selling them for a loss.
1. In general, the point at which gains equal losses. 2. In options, the market price that a stock must reach for option buyers to avoid a loss if they exercise. For a call, it is the strike price plus the premium paid. For a put, it is the strike price minus the premium paid. Also referred to as a "breakeven". For businesses, reaching the break-even point is the first major step towards profitability.
A dual option position involving a bull and bear spread with identical expiry dates. This investment strategy provides for minimal risk. Additionally, it can lead to an arbitrage position as an investor attempts to lock in a small return at expiry. A box spread is a complicated strategy for the more advanced options trader. The purpose of this investment is to locate and exploit the discrepancies within the market prices of option contracts.
An all-electronic equity derivatives exchange launched on February 6, 2004, as a joint effort by the Montreal Exchange, Boston Stock Exchange and Interactive Brokers Group to provide an alternative to existing options markets. Technical operations of the Boston Options Exchange (BOX) are handled by the Montreal Exchange. The BOX was the first options exchange to offer price improvement to traders through a process called PIP, which stands for Price Improvement Period. Although all investors can be "PIPed," the investor must have a broker that is willing and able to offer a facilitation trade – a trade where the broker guarantees the first penny of price improvement. Because not all brokers offer this to their clients, some investors do not have access to the price improvement offered on the BOX.
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