The ratio of the change in an option's price to the decrease in time to expiration. Since options are wasting assets, their value declines over time. As an option approaches its expiry date without being in the money, its time value declines because the probability of that option being profitable (in the money) is reduced. Also known as "theta" and "time-value decay". Time decay of an option begins to accelerate in the last 60 to 30 days before expiry, provided the option is not in the money. But in the case of options that are deep in the money, time value decays more rapidly. The market finds these options too expensive compared to other strike prices or futures. As such, the holders of deep-in-the-money options nearing expiry discount the time value to attract buyers and in turn realize the intrinsic value. The greater the certainty about an option's expiry value, the lower the time value. Conversely, the greater the uncertainty about an option's expiry value, the greater the time value.
A firm that specializes in buying commercial paper from companies and then selling/marketing it to investors. |||When companies issue commercial paper they can either sell it directly to buyers or sell the issue to a "paper dealer" who then resells it to investors for a profit.
A measure of the rate of decline in the value of an option due to the passage of time. Theta can also be referred to as the time decay on the value of an option. If everything is held constant, then the option will lose value as time moves closer to the maturity of the option.Theta is part of the group of measures known as the "Greeks" (other measures include delta, gamma and vega) which are used in options pricing. For example, if the strike price of an option is $1,150 and theta is 53.80, then in theory the value of the option will drop $53.80 per day.The measure of theta quantifies the risk that time imposes on options as options are only exercisable for a certain period of time. Time has importance for option traders on a conceptual level more than a practical one, so theta is not often used by traders in formulating the value of an option.Theta is the 8th letter in the Greek alphabet.
The debt of a political entity, such as a state where its tax base overlaps the tax base of another political entity, such as a city within the state. |||If the issuer of a municipal bond has overlapping debt, it should be considered.
An investment strategy of short selling a security and entering a long position on its call. This almost has the same effect as buying a put; the downside loss potential of the short position is capped with the strike price of the call.
A short-term paper on which the rate is denominated and paid in a base currency. However, the rate movement is based on the exchange rate with an alternate currency. |||This is a commercial-paper variation of the currency coupon swap.
A term used in derivatives trading, such as with options. A derivative is a financial instrument whose price is based (derived) from a different asset. The underlying asset is the financial instrument (e.g., stock, futures, commodity, currency, index) on which a derivative's price is based. For example, an option on a stock gives the holder the right to buy or sell the stock for a specified amount (strike price) at a certain date in the future (expiration). The underlying asset for the stock option contract is the company's stock.
A type of options contract that is not backed by an offsetting position that would help mitigate risk. “Trading naked”, as it is called, poses significant risks. However, an uncovered options contract can be profitable for the writer if the buyer cannot excecise the option becuase it is out of the money. Generally, uncovered options are suitable only for experienced, knowledgeable investors who understand the risks and can afford substantial losses. Also called a "naked option". If a market participant sells a call option without owning the underlying instrument, the call is uncovered. If the buyer exercises his or her right to purchase to underlying instrument, the person who sold the call option (the writer) will need to buy the underlying instrument at its current market price in order to fulfill the contract. Because of the inherent risks in trading uncovered options, many brokers restrict account holders from writing uncovered option positions, thereby limiting clients' exposure to unlimited market risk.
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