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The Greeks: Theta
March 28, 2017
Concepts

The Greeks: Theta

Martin Noël

This week, we will look at another Greek variable: theta. Theta measures the change in the price of an option following a change in the time remaining to its expiration. You will recall that an option’s premium has two components: intrinsic value and time value. But since an option that has reached expiration has run out of...

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7 months ago
Will Volatility Revert to the Mean?
March 22, 2017
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Will Volatility Revert to the Mean?

Hans Albrecht

A crucial foundation for understanding how option volatility works is the concept of ‘mean reversion’. For a period, stocks can go up and stay up, and they can conversely go down and stay down. But option pricing will generally have trouble staying high or low for an extended length of time. So why do prices eventually move...

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7 months ago
The Greeks: Delta
March 17, 2017
Concepts

The Greeks: Delta

Martin Noël

In the last few articles, we have seen that there are several variables that have an impact on the value of options. This table illustrates how an increase in one of the variables affects the values of call and put options. As you can see, with all other things being equal, when one of the variables moves, we should expect the...

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7 months ago
A Wall of Worry
February 23, 2017
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A Wall of Worry

Jason Ayres

There’s an old saying that “markets climb a wall of worry and slide down a slope of hope”. I think many would agree that although both U.S. and Canadian equities continue climb, there’s no shortage of apprehension when discussing how much further the markets can go with out some sort of a correction. One...

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8 months ago
Dividend Impact on Options’ Intrinsic Value
February 06, 2017
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Dividend Impact on Options’ Intrinsic Value

Martin Noël

As we mentioned in earlier articles, an option’s intrinsic value is the premium value related to the difference between the stock’s price and the strike on the option. VIoa = max(S – X; 0) VIov = max(X – S; 0) In the previous article, we saw that the evolution of interest rates had an impact on the actual value...

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9 months ago
Impact of interest rates on the intrinsic value of options
January 31, 2017
Concepts

Impact of interest rates on the intrinsic value of options

Martin Noël

The intrinsic value of an option is the value of its premium related to changes in the underlying stock’s price compared to the option’s strike price. So the intrinsic value of a call option (IVco) is the difference between the market price of the underlying (U) and the strike (X) of the call option, while the intrinsic...

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9 months ago
Variables with an impact on the value of options
January 24, 2017
Other

Variables with an impact on the value of options

Martin Noël

You have done your homework on a stock, analyzing its fundamental and technical data, and you are bullish about its potential over the next few months. You decide to buy call options to make the most of your forecast. Over the next few weeks, the stock climbs slightly, and you see the value of your call options declining...

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9 months ago
Selecting options expiration dates : Thêta
January 24, 2017
Concepts

Selecting options expiration dates : Thêta

Montréal Exchange

Before selecting an expiration date on an option contract, it is important to review some basic concepts of option trading. Options are perishable Absolutely! Remember that the premium of an option is defined as a tangible value, determined by the relationship between the strike price and the price of the underlying stock (also...

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9 months ago
no-cover
January 09, 2017
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Writing covered calls as a hedge against a slight drop in the shares of Sun Life Financial Inc.

Martin Noël

Writing covered calls as a hedge against a slight drop in the shares of Sun Life Financial Inc. As can be seen in the following weekly chart, shares in Sun Life Financial Inc. (SLF) have broken out of a range of $35 to $45 that has characterized trading since the beginning of 2014. In principle, $45 should now be a support...

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10 months ago
Follow-up #1 – Mixed Horizontal Calendar Spread on Units of XIU
January 09, 2017
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Follow-up #1 – Mixed Horizontal Calendar Spread on Units of XIU

Martin Noël

  In our article dated November 28, 2016, we established a mixed horizontal calendar spread on units of XIU (the iShares S&P/TSX 60 Index ETF), looking to take advantage of relatively stable prices until the options mature on December 16, 2016.   Initial position as at November 25, 2016 (value as at December 16,...

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10 months ago