An Equity derivative is a derivative instrument with underlying assets based on equity securities. The value will fluctuate with changes in its underlying asset's equity, which is usually measured by share price. Equity derivatives can be used to hedge the risk associated with taking a position in stock by setting limits to the losses incurred by either a short or long position … [Read more...]
Archives for 26/02/2010
Credit Derivatives
Credit derivatives are privately held negotiable bilateral contracts that allow users to manage their exposure to credit risk. To be precise, Credit derivatives are financial assets like forward contracts, swaps, and options for which the price is driven by the credit risk of economic agents. To explain it take an example, a bank concerned that one of its customers may not be … [Read more...]
Vertical Spread
The Vertical spread is an options trading strategy with which a trader makes a simultaneous purchase and sale of two options of the same type that have the same expiration dates but different strike prices. Profits in a vertical spread are determined by the widening or narrowing of the difference between the option premiums on the two positions. Vertical spreads can be … [Read more...]
Ratio Spread [Explained]
The Ratio spread is an options strategy in which an investor simultaneously holds an unequal number of long and short positions. While investing, a commonly used ratio is two short options for every option purchased. It can also be said that the ratio-spread is a strategy in options trading that involves buying some number of options and selling a larger number of other options … [Read more...]
Diagonal Spread
A Diagonal spread is an options strategy established by simultaneously entering into a long and short position in two options of the same type i.e, two call options or two put options. It is also a strategy with different strike prices and expiration dates. The diagonal spread is similar to the calendar spread, where near term options are sold while long term options are … [Read more...]