Concepts

Delta: Assessing Probabilities Based on the Break-even price
May 07, 2017
Concepts

Delta: Assessing Probabilities Based on the Break-even price

Martin Noël

As we saw in an earlier article, delta measures how much an option’s price moves in relation to a change in the price of the underlying asset. Delta is a variable from the Black-Scholes option pricing model, and it is also used in the industry as an approximation of the probability that the option will be in-the-money at...

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Purchasing Put Options or Selling Call Options to Protect Oneself? (Third and Last Part)
May 02, 2017
Concepts

Purchasing Put Options or Selling Call Options to Protect Oneself? (Third and Last Part)

Martin Noël

In the two previous articles, we compared purchasing put options as a protective strategy with selling covered call options. The first article used options with monthly expirations, and the second article used options expiring after our period of analysis, from April 17, 2015 to January 22, 2016. In both cases, the analysis led...

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3 years ago
Purchasing put options or selling call options to protect oneself? (Part 2)
April 20, 2017
Protection

Purchasing put options or selling call options to protect oneself? (Part 2)

Martin Noël

In the last article, we compared purchasing put options with selling call options. We reached the conclusion that, in the absence of a known target price and timeframe, it is better to use strategies that take advantage of the decaying time value of options, such as selling call options, as protection against a decline in the...

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3 years ago
Purchasing put options or selling call options to protect oneself?
April 11, 2017
Bearish Outlook

Purchasing put options or selling call options to protect oneself?

Martin Noël

Is it better to purchase put options or to sell call options for protection against loss? Many investors ask this question but, in this as in many areas, there is no single right answer. As we have seen in earlier articles, purchasing options has one major disadvantage: the erosion of the time value that must be counterbalanced...

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The Greeks – Vega
April 05, 2017
Concepts

The Greeks – Vega

Martin Noël

This week, we will look at another Greek variable, called vega. Vega measures the amount that an option contract’s price changes in response to a change in the volatility of the underlying asset. You will recall that an option’s time value is influenced by the time remaining until expiration and by the implied volatility of...

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3 years ago
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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The Greeks: Gamma
March 23, 2017
Concepts

The Greeks: Gamma

Martin Noël

Our last article showed how delta could help predict the future value of options following a change in the price of the underlying asset. We also learned that delta gives an indication of the equivalent stock position (ESP) on the underlying asset. Gamma Gamma measures the change in the value of delta relative to a change in...

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Term Structure of Implied  Volatility
March 04, 2017
Concepts

Term Structure of Implied Volatility

Martin Noël

Changes in implied volatility provide information on options market participants’ expectations regarding future fluctuations in returns on a specific stock. For the purposes of this discussion, we will analyze volatility in the stock price of the Great Canadian Gaming Corporation (GC), which closed at $23.79 on February 24,...

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