Trading shares of stock has become as common as surfing the Internet. But, like any financial investment, trading stock is risky. The price can fall unexpectedly and stay down for lengthy periods. To offset that risk, and to trade with more funds than you have without borrowing, options are… well, an option.
An option is a [...]

Bid - The highest offered price at a specified time.
Black-Scholes Model – A theoretical method of pricing using strike price, market price, interest rates, expiration date and other factors.
Butterfly Spread – A trading strategy consisting of the purchase of two identical options, together with the sale of one option with a higher strike price, and [...]

In Part I, we introduced the concept of the Greeks as trading tools and discussed delta and theta. We continue by examining gamma and vega. (Note: unlike the others, vega is NOT a Greek letter.)
Next in line is gamma. Here again the mathematics is slightly advanced, but the idea is simple. (For those who remember [...]

The ancient Greeks are justly praised for inventing much of elementary mathematics. But it was left to moderns to create the tools that help options traders quantify risk and calculate prices. Chief among these tools are several quantities known fondly as The Greeks: delta, theta, gamma and vega.
While the underlying mathematics is heavy going, the [...]

Options are contracts on some underlying trading instrument - shares of stock, bonds, a commodity, a mortgage loan, etc. (The list is endless.)
But regardless of what the option is on, there are common features. One of the most basic is the contract feature specifying what the option owner has actually contracted for.
CALLs
A ‘call’ confers on [...]

Trading options is risky. While the risk is limited to the cost of the option (the ‘premium’), that isn’t necessarily small. A Google June 400 call can cost around $2800.
The premium may be only 28, but an option contract is a commitment for 100 shares. Hence the figure is multiplied by 100. Of course, for [...]

In Part I, we outlined an example. MSFT (Microsoft) stock with a current market price of $27, and a June 30 call option with premium of $2. (I.e. an option whose characteristics are: contract to buy 100 shares of MSFT by June 16 at a strike price of $30. Remember the ‘30′ refers to the [...]

Unlike stocks, options have an expiration date. Unless a company goes bankrupt or buys back all its stock, the stock investor always has the choice to wait for a price correction. Sometimes that wait represents the triumph of hope over experience, but more on that elsewhere.
That expiration date makes calculating an option’s value more complicated, [...]

The terms ‘options’ and ‘futures’ appear together often enough to confuse even knowledgeable traders into thinking they are the same thing. But, while they have important similarities, options and futures are distinct trading instruments.
An option is a contract conferring the right to its buyer to purchase an underlying asset at a fixed price (the ’strike [...]

Options are frequently used in hedging.
A hedge is an investment made to offset the risk incurred by entering another investment. Ironically, the basic idea is to bet against oneself, in a way.
Speculate that the market price will rise in the future and buy a call today. (A call is an option that confers the right [...]